U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[ X ] Annual report under Section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required] for the fiscal year ended:
December 31, 1998
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[ ] Transition report under Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required] for the transition period
from ___________ to __________
COMMISSION FILE NUMBER: 33-37751-D
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SOFTLOCK.COM, INC.
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(Name of small business issuer in its charter)
DELAWARE 84-1130229
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
399 ALEXANDER STREET
ROCHESTER, NEW YORK 14607
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (716) 546-1970
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Securities to be registered under Section 12(b) of the Act: None
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Securities registered under Section 12(g) of the Act: None
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Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past
12 months (or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing requirements
for at least the past 90 days. Yes X No
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Check if there is no disclosure of delinquent filers pursuant to Item 405
of Regulation S-B contained herein, and will not be contained, to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment
to this Form 10-KSB. [ X ]
Issuer's revenues for its most recent fiscal year: $109,402
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Aggregate market value of voting stock held by non-affiliates as of March
19, 1999: $5,703,225
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Shares of Common Stock, $0.01 par value, outstanding as of March 19, 1999:
9,688,208
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Documents incorporated by reference: Exhibits to Issuer's Registration
Statement on Form S-18, No. 33-37751-D.
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TABLE OF CONTENTS
Page
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Item 1. Description of Business 1
Item 2. Description of Property 21
Item 3. Legal Proceedings 21
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 5. Market Price of the Registrant's Common Stock and
Related Security Holder Matters 23
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations 24
Item 7. Financial Statements 28
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 28
Item 9. Directors and Executive Officers, Promoters and
Control Persons; Compliance With Section 16(a) of
the Exchange Act 29
Item 10. Executive Compensation 32
Item 11. Security Ownership of Certain Beneficial Owners
and Management 37
Item 12. Certain Relationships and Related Transactions 38
Item 13. Exhibits, Financial Statements and Reports on Form 8-K 39
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SOFTLOCK.COM, INC.
FORM 10-KSB
PART I
INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN THIS REPORT CONTAINS
"FORWARD-LOOKING STATEMENTS" WHICH CAN BE IDENTIFIED BY THE USE OF
FORWARD-LOOKING TERMINOLOGY, SUCH AS "BELIEVES," "EXPECTS," "MAY," "WILL,"
"SHOULD" OR "ANTICIPATES" OR THE NEGATIVE THEREOF OR OTHER VARIATIONS
THEREON OR COMPARABLE TERMINOLOGY, OR BY DISCUSSIONS OF STRATEGY. SEE
"ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS."
NO ASSURANCE CAN BE GIVEN THAT THE FUTURE RESULTS COVERED BY THE
FORWARD-LOOKING STATEMENTS WILL BE ACHIEVED. THE FOLLOWING MATTERS INCLUDE
CAUTIONARY STATEMENTS IDENTIFYING IMPORTANT FACTORS WITH RESPECT TO SUCH
FORWARD-LOOKING STATEMENTS, INCLUDING CERTAIN RISKS AND UNCERTAINTIES, THAT
COULD CAUSE ACTUAL RESULTS TO VARY MATERIALLY FROM THE FUTURE RESULTS
COVERED IN SUCH FORWARD-LOOKING STATEMENTS. OTHER FACTORS COULD ALSO CAUSE
ACTUAL RESULTS TO VARY MATERIALLY FROM THE FUTURE RESULTS COVERED IN
FORWARD-LOOKING STATEMENTS.
ITEM 1. DESCRIPTION OF BUSINESS.
BACKGROUND
SoftLock.com, Inc. ("SoftLock.com" or the "Company") was incorporated
under the name Fieldcrest Corporation in the State of Delaware in December,
1989, for the primary purpose of seeking out acquisitions of properties,
businesses or merger candidates, without limitation as to the nature of the
business operations or geographic area of the acquisition candidate. In
August 1991, the Company completed an initial public offering, receiving
proceeds of $47,250 from the sale of 4,725,000 Units, consisting of Common
Stock and Class A and B Warrants (the "Warrants"). The Company's offering
was subject to the Colorado Securities Act, which required the placement
into escrow of $19,440 of the net proceeds of the offering until the
completion of a transaction or series of transactions whereby at least 50%
of the gross proceeds received from the sale of Units in the offering was
committed for use in one or more specific lines of business. The escrow
condition had not been satisfied as of the fourth anniversary of the
initial public offering, and accordingly, the Company distributed those
funds pro rata to those persons who were owners of the shares of Common
Stock purchased in the offering. The Warrants which were included in the
Units sold in the public offering expired February 12, 1999.
On July 28, 1998, the Company and SoftLock Services, Inc. ("SSI")
consummated an Agreement and Plan of Reorganization whereby the Company
acquired all of the issued and outstanding common shares of SSI in exchange
for the issuance of 7,097,266 shares of the Company's Common Stock. The
Company has accounted for the transaction as a reverse acquisition under
the purchase method of accounting. The fiscal year of the Company was
changed from March 31 to December 31 to correspond to the fiscal year of
SSI.
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Subsequent to the reverse acquisition of SSI, the Company changed its
name from Fieldcrest Corporation to SoftLock.com, Inc. to better reflect
the ongoing business of the Company. The Company's trading symbol was also
changed to "SLCK". The Company's Common Stock currently trades on the over
the counter Bulletin Board. In August 1998, the Company effected a 1 for
50 reverse split of its Common Stock. All numbers in this Report reflect
the reverse split.
Except as otherwise noted, all references to the "Company" include
SoftLock.com, Inc. and its subsidiary, SSI.
BUSINESS OF THE COMPANY
The Company, through its wholly owned subsidiary, SSI, provides a
system that allows commercial web sites to sell digital content on demand.
Publishers of digital products, including research reports, newsletters,
electronic books and software, use the Company's software to "SoftLock-
enable" their products. These products may then be freely distributed on
the Internet or by CD-ROM. When a prospective end-user receives a
SoftLock-enabled product, the prospect can view a portion of the final
product (i.e. "demo" the product). The prospect can then instantly
purchase access to the complete product 24 hours a days, seven days a week
via the World Wide Web, e-mail or fax. The end-user then has permanent
access to the product for the user's own use. The end-user is also
encouraged to copy the product and redistribute it to friends or colleagues
because SoftLock-enabled products automatically return to "demo" mode and
invite another purchase when copied from one context to another.
The Company's patented system (US #5,509,070) for information commerce
allows commercial web sites to sell their electronic information simply and
securely. Because SoftLock-enabled content can be instantly purchased and
re-distributed, but not pirated, the technology is useful in many markets,
but especially for information "publishing" web sites (news, media,
finance, research, etc.). Until now, commercial "publishers" (a generic
term for the owner of the intellectual property, which includes traditional
print publishers, web-based information services, media and research sites)
have hesitated to place their most valuable content on the Internet because
it has been too easy to infringe their copyright, make unlimited numbers of
copies, and redistribute their information products. As a result,
publishers either give away less valuable content in hopes of generating
traffic for advertising revenue, or they password-protect their web site
and charge subscription fees for access. The Company believes neither
approach really works: few sites are popular enough for significant ad
rates and subscription sites exclude casual users and deter first-time
purchases, while affording publishers little real protection--content and
passwords can still be pirated.
The Company has introduced a third business model for commercial web
sites. Rather than giving content away or requiring visitors to subscribe
to all of a site's content in advance, publishers can now charge for
specific content on demand. Most importantly, the content remains secure
and generates revenue NO MATTER HOW MANY TIMES IT IS COPIED AND
REDISTRIBUTED. With the Company's product, publishers are now able to sell
their most compelling and valuable content.
The three main software elements of the Company's system are Authoring
(so publishers can SoftLock-enable their content), Client (for users to
purchase and view SoftLock-enabled content) and Server (for providing the
various SoftLock.com services: web and telephony systems for key vending
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and credit card clearing, database systems, etc.). Since HTML and Adobe
Acrobat Portable Document Format (PDF) files are the de facto standard for
publishing documents online, the Company's next generation system will
target these two main "platforms." Subsequent releases of the SoftLock.com
system will add support for additional "platforms."
HOW IT WILL WORK
It will be very easy for publishers to adopt the SoftLock.com system.
The Company will provide easy to use tools for publishers to "SoftLock-enable"
their documents. Publishers will specify a few parameters (such as
price, which parts of the document are free in the sample and which parts
must be purchased) and will then save the file and receive all SoftLock.com
benefits: turnkey E-commerce, the Chain Reaction Channel, the SoftLock.com
Affiliate System, and intellectual property security, among others.
The SoftLock.com system will also be quick and easy for prospects.
When visiting a publisher's web site a prospect would click on a normal
hyperlink. The prospect would then be able to view a portion of the
document and with a simple click would be invited to purchase the document
or pass it on to another prospect.
This purchase button is linked to www.softlock.com where server
software will determine whether the requisite SoftLock.com client software
is on the prospect's computer. If not, the server will automatically
download and install any required software (after obtaining permission from
the customer). When SoftLock.com's client software is set up (or if it is
already set up from a previous purchase), the prospect will be taken
through a quick purchase process where name, address and credit card
information will be gathered. Finally, the server will give instant access
to the complete document by generating and installing a key on the user's
system that is unique to that product and that user's computer.
Alternative purchase methods work similarly, albeit slower. If the
purchaser uses 1-800-SOFTLOC, for instance, their purchase information will
be submitted to the Company's interactive voice response system via touch-tones.
The SoftLock.com client software will work in a very straightforward
manner. Whenever a user tries to display a document that uses the
SoftLock.com security method, the SoftLock.com plug-in will check for a
valid key for this document on their machine. If there is a valid key, it
will decrypt and display the complete document. If the key is missing or
is invalid, then it will only display the free sample content and invite a
purchase.
Throughout the process, both prospects and customers will be
encouraged to pass along the content to their friends and colleagues.
Other than the fact that the document will be coming from a friend in e-mail
rather than from a publisher's web site, the SoftLock.com system
operates exactly the same way. The PDF document would display in Acrobat
Reader, the prospect can peruse the sample and can purchase the complete
document at any time simply by clicking a button.
THE CHAIN REACTION CHANNEL
The Company believes its patented system of software products and
vending services will revolutionize information commerce, because it builds
copyright protection, payment processing, and a
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distribution system right into the product. Rather than resist the user's
natural tendency to copy and redistribute digital content (as other systems
do), the Company actually makes redistribution work to the publisher's
advantage:
- Prospects can easily view free, limited "samples" of electronic
information (for example, document abstracts and initial sections). The
prospect is encouraged to send the sample to anyone who might be interested
in it.
- When prospects try to see more than is in a sample, they are
invited to purchase the complete product. One mouse click brings them to
www.SoftLock.com where they enter their name, address and credit card
information (all major credit cards are accepted) to obtain a unique key or
password. (Alternatively, prospects may dial 1-800-SOFTLOC with their
touch-tone phone, or use paper mail, e-mail or fax.)
- The unique key automatically and permanently unlocks the full
product on that customer's computer. (Publishers determine the product's
price, and optionally may disallow printing, cutting and pasting, etc.)
- The customer also is encouraged to send the full product to
anyone who might be interested in it. However, when the full product is
electronically copied or e-mailed to someone else, it automatically re-locks
and becomes a sample again. Sending a key along with the product
will not unlock the sample since the key is specific to the original
purchaser's computer.
- When new prospects try to see more than is in the sample, they,
too, are invited to purchase the complete product.
By facilitating the electronic purchase of a full product by those
sampling it, the Company turns browsers into customers. By encouraging
redistribution to colleagues and friends, the Company turns prospects and
customers into distributors. Publishers sell not only to their prospects,
they end up selling to the friends and colleagues of their prospects, too.
For example,
Tom was unwilling to subscribe to an analytic research service
for $395 per year. But he eagerly purchased a $25 article from
their web site that analyzed recent merger activity in his
industry. It was important to his job, the price was reasonable
and it was convenient. Furthermore, when Tom e-mailed the
article to other vice presidents at his company, seven of them
also paid the $25 fee; so did fifteen people who report to those
vice presidents. The analytic research service received a total
of $575, all thanks to Tom, who was unwilling to purchase a $395
yearly subscription.
The SoftLock.com transaction system effectively leverages its
geometric expansion power to create a new, virtual sales channel for
publishers. The Company calls its new system, which is currently in
development, the "Chain Reaction Channel(TM)". The Chain Reaction Channel
is a true sales channel even though there are no employees, no bricks and
no mortar. For instance, in the previous example, while the analytic
research service sold one report directly to Tom (their web site visitor),
the Chain Reaction Channel sold 22 copies (to Tom's colleagues). As is
true for any sales channel, when the Chain Reaction Channel sells a
product, the Company earns a sales commission (estimated at 10-20%).
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In addition to dramatically increasing sales, the Chain Reaction
Channel also decreases costs. Within the Channel, prospects and customers
distribute the electronic products themselves, so printing and distribution
costs (i.e., manufacturing, warehousing, shipping, returns, etc.) are
dramatically reduced. Furthermore, significant reductions can be realized
in direct marketing expenditures since, as explained below, the Chain
Reaction Channel is a HYBRID of a direct marketing and a sales system.
MARKETING
The Company believes the Chain Reaction Channel to be a no-cost,
highly targeted, direct marketing mechanism: prospects send samples to pre-
qualified acquaintances based on their knowledge of the document and of
their acquaintance. Furthermore, since the recipient knows the sender, the
receiver is much more likely to read what's sent, to be interested in it
and to purchase the document.
Expanding upon this, the Company believes the Chain Reaction Channel
also offers publishers (and the Company) a unique source of marketing data.
When purchasing a product, customers enter basic name and address
information along with credit card data. To this basic information, the
Company's system invites customers to voluntarily provide additional
information desired by the publisher (perhaps in return for a discount or
some other incentive). Proprietary Company technology will also track the
"lineage" of document purchases (i.e., A sent a document to B; B purchased
it and sent a copy to C, etc.), and can cross correlate these data with
publisher-supplied profiles of the content itself. For instance, profiles
might range from broad, classic demographic categories (i.e. "this document
appeals to 30-35 year old females of median income") to very narrow
document-specific topics (i.e. "a report on Latin American derivative
trading during weekends in 1997").
Taken together, these data sources can reveal valuable "one-to-one"
and "community of interest" marketing information. For example:
A publisher might characterize a product as "interesting to 25-35
year old males in mid-level management positions in Fortune 500
companies." After the product had been sold for a time, an
analysis of the Company's marketing database would show
particular redistribution "lineages." For instance, it might
show that Tom initially bought the product and then passed a
locked sample to Mike. Mike subsequently bought the complete
product and then passed the locked sample to Jim, who also ended
up buying the complete product. Combining the publisher's
"characterization" information with the "lineage" of this product
tells us that Tom, Mike and Jim are a "community" interested in
products for 25-35 year old males in mid-level positions in
Fortune 500 companies. When Tom makes additional transactions
through the Company's system, this data even becomes more
valuable.
The Company's method also minimizes customer privacy concerns. All
information obtained from the customer is routine and/or voluntarily
submitted. In the example above, Tom, Mike and Jim were not required to
supply any information beyond what is typical when paying by credit card.
It is the publisher who supplies the characterization information, and it
is the Company which derives the valuable community of interest and
one-to-one data. Furthermore, proprietary data security
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technology built into the Company's system allows the Company to assure
publishers and end-users alike that this data will not be misappropriated
or abused.
THE SOFTLOCK.COM AFFILIATE SYSTEM
In an affiliate program, a vendor seeks alliances with referring sites
whose visitors are likely to purchase the vendor's products. A link on the
referring site allows a prospect to easily and conveniently purchase a
desired product from the vendor. The vendor effects the sale and the
referring site earns a referral fee of 5-10%. Thus, the referring web site
effectively acts as distribution point or "store" for the vendor.
Affiliate programs are truly win/win/win scenarios for customers, vendors
and stores. As a result, affiliate programs have become a standard web
marketing tactic.
The key reason affiliate programs are so successful is because they
create effective sales opportunities: vendors appear in front of their best
prospects where and when they are most likely to buy. Historically,
vendors of information-based products have not been able to use this
powerful technique because they were unable to protect their intellectual
property.
In addition to enabling sites to create their own affiliate program,
the Company is actively creating an Affiliate SYSTEM. The Company plans to
actively help facilitate and create demand for information products
(thereby increasing their sales and the Company's commissions) through the
SoftLock.com Affiliate System. The Company's Affiliate System will connect
a wide variety of information-providers (grouped into "channels," such as
the Financial Channel, the Consumer Channel, etc.) with a wide variety of
stores (grouped into "districts" such as the Financial District, the
High-Tech District, etc.). For example,
TLG Inc., a financial information publisher would not sell its
valuable TLG Reports online because of piracy concerns. The
Company's technology removed those barriers and allowed TLG to
sell their reports from their web site. Furthermore, by joining
SoftLock.com's Affiliate System, TLG was able to get instant
exposure at a host of additional stores from which they could
sell their reports.
One of those stores was the web site of the Metropolitan Daily
Press. The Daily Press was happy to place a button on the web
page that displayed closing mutual fund prices. This button
enabled its users to purchase TLG reports for $5.00. The Daily
Press was offering value-added content (more than a simple
listing of prices, it could offer cutting edge analysis from a
respected research service) that made its site more attractive
and useful to its users while earning a referral fee.
Mary was a little nervous about her $20,000 investment in Funds
R Us and noticed the TLG button while checking Fund prices on the
Daily press web site. The sample report was so timely,
appropriate and reasonably priced she readily purchased the full
report. Indeed, the full report was so satisfying she sent it to
10 other people in her investment club, many of whom had never
even visited the Daily Press web site. Nonetheless, their
subsequent purchases translated into additional sales for TLG,
referral fees for the Daily Press, and commissions for
SoftLock.com.
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The Company believes all parties benefit from this system: publishers get
a turnkey affiliate system that offers a broad distribution of stores from
a wide variety of districts, yet there are no up-front fees, no e-commerce
projects to manage, no commerce servers to buy and no employees to manage.
Publishers are also able to control which stores may offer their content
and under what terms.
Stores become more attractive to users by offering a broader selection
of more valuable content. The Company believes that the truism, "you get
what you pay for" is generally accurate: if people are willing to pay for
it, it is more valuable than free content. Furthermore, not only is this
attractive content available without charge to the store, the store is
actually paid when sales are made! Indeed, the store can earn fees even
when users pass content on to associates (who may not even have visited
their store).
The Company believes it will benefit from the Affiliate System
greatly, even though there are no specific charges to stores or publishers
for participation. Rather, the Company is developing it to:
- Create demand for content by facilitating sales opportunities. As
in the above example, at the time and place that Mary was thinking about
her mutual fund, she had an opportunity to purchase a report. It is far
less likely that Mary would have sought out TLG's site on her own. Mary
might not know the company, she probably wouldn't know their URL and, in
light of other available investment information sites, she might assume she
would have to pay for an expensive subscription just to get the one report
she wants. The Company believes that creating demand for content will
accelerate the transition from an emerging to a broad market.
- Build a SoftLock.com brand identity. As more stores join the
Affiliate System, it becomes more attractive to publishers and as more
publishers join, it becomes more valuable to the stores. Momentum starts
to build and at a certain point, a critical mass is reached and
SoftLock.com becomes the way to sell electronic information. From that
point forward, the Company anticipates a future high growth rate.
Thus, the Company's marketing programs, like its technology, will
capitalize on the web's potential for exponential growth.
PATENTS, INTELLECTUAL PROPERTY AND LICENSING
The Company's patent (US #5,509,070) was issued on April 16, 1996.
Authored by SSI's founder and the Company's President, Dr. Jonathan Schull,
the patent covers the computer and telecommunications technologies that
implement the Company's business. A fundamental, primary claim protects the
concept of a central key vending system for context-locked digital content.
These keys unlock specific content in a particular context. The patent
defines "context-specific" broadly, and explicitly addresses non-hardware-
based contexts, such as voiceprints. It also broadly defines digital
content to include essentially all digital information: documents, videos,
music, data files (for example, Excel .xls files), as well as executable
programs (for example, Excel itself). A Continuation in Part which also
includes new material relating to the gathering and utility of the
Company's marketing data is pending with the U.S. Patent and Trademark
Office.
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The Company has a registered trademark for SoftLock and has registered
the following Internet domains: www.passwords.com, www.passiton.com,
www.softlock.com. and www.selfpublish.com. In addition, the Company uses
the easily remembered number (800)SOFTLOC for its telephone transaction
system.
In June 1998, the Company entered into a Consulting Agreement with
Inso Providence Corporation ("Inso"), one of the key vendors in the
Document Management Industry, pursuant to which the Company provided
development and marketing services for Inso's Dyna family of products and
granted Inso a license to use the Company's software in its Dyna products.
During the term of the Inso Agreement, the Company provides up to three
hours per week or one on site day per month to Inso. The Company received
a $25,000 advance against licensing fees upon signing the Inso Agreement,
and receives $2,000 per month. The Document Management Industry, in
particular, represents a significant opportunity for the Company, given the
existence of established vendors and their need for a document commerce
offering. INSO and the Company are currently co-developing a SoftLock.com-
module to augment their large-scale corporate publishing systems. This
module is currently scheduled for release in the first quarter of the year
2000.
The Company's approach to redistributable but non-pirateable digital
products is applicable to the software and new media markets as well.
However, while these are large and lucrative markets, a relatively small
number of well-entrenched, well-financed distributors are already in place
(Release Software, Time Warner, Liquid Audio, Music Blvd, etc.). The
Company's patent applies to these markets, and the Company believes there
is a future (12-24 months out) business opportunity to license the
Company's patent to these companies and to other emerging markets, such as
computer based training.
MARKETING
The Company intends to reach the market through a leveraged
combination of Direct, Reseller and OEM channels. The Company intends to
sell its e-commerce service to web-based publishers and stores directly.
Through the Chain Reaction Channel and SoftLock.com Affiliate System, the
Company hopes to develop a network of resellers of its e-commerce service.
These resellers will be drawn from companies focused on specific vertical
markets, such as financial and traditional publishing, or from companies
whose business is based on complementary technology, just-in-time printing
and e-commerce.
The Company also plans to continue to build an OEM channel. Unlike
Resellers who will be interested in the Company's overall business
capabilities, the Company believes OEMs will be more interested in the
Company's core security and e-commerce technology. For example, the
Company will be directly supporting the distribution of HTML and PDF
documents with the next release of its technologies. There are, however, a
number of other content distribution formats or "platforms" that would
benefit from the Company's core intellectual property protection technology
as well as its transaction vending system. The Company will develop
relationships with OEM partners who will adapt the Company's technology and
market the adapted technology and vending system for these new platforms.
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The Affiliate System is intended to operate broadly across the
Internet, creating a distribution system linking a publisher with many
stores. Once a prospect finds interesting content on ANY of these sites,
the Chain Reaction Channel can sell and resell that content down through
the pass-along chain.
The Company believes the Affiliate System will build a prominent brand
identity for selling digital information over the Internet for the Company.
Companies such as Yahoo and Amazon.com have proven the value of staking the
first branded claim in a valuable, new Internet business opportunity. The
Company believes the Affiliate System will grow rapidly through the actions
of the Company, its Resellers and OEMs and its high-reward and low-risk
appeal. The Company will earn a commission on each sale, and gather
valuable marketing data for resale. The Company's patent(s) will also be
licensed for both monetary and strategic gain.
The Company estimates its markets in terms of the number of potential
customers, instead of dollars. The market research firm ActivMedia reports
that there were 414,000 active commercial web sites at the beginning of
1998 (double the number in 1997) and by 2002, they project there will be
1.6 million web sites online. Nearly all of these sites are prospects for
the Company (except for the few who can survive using the advertiser or
subscription model). The research firm IDC estimates that in the year
2002, 128 million people will be purchasing $400 billion worth of goods and
services over the Internet (103% compound annual growth over five years).
EVOLVING OPPORTUNITIES
Initially, the Company intends to focus on the web-oriented,
information commerce market through direct and indirect means. The Company
will also expand its OEM position in the Document Management market. Over
time, the Company anticipates that it will license it patent to companies
in the software, digital music or video markets. Finally, marketing data
from these markets will be used to build and enhance the marketing database
business.
COMPETITION
The Company believes its strength lies in its integration of
technologies and services from three distinct market areas: electronic
commerce, copyright protection, and data security. Companies operating in
each of these markets might be viewed as competitors, but since they offer
only partial, incomplete solutions, the Company believes they are not true
competitors.
ELECTRONIC COMMERCE. Electronic Commerce companies such as CyberCash,
TrustNet and OpenMarket sell technologies and services for secure payment,
back-end processing of orders, logistics and the shipping of goods.
Information Commerce, which refers to the sale of information-based goods,
would seem to be a simple extension of E-commerce technology. However,
several companies, such as Imark, First Virtual's Info Haus and Paul
Allen's IdeaMarket, that have attempted to combine E-commerce with
electronic delivery of unprotected, easy-to-pirate digital goods have gone
out of business or stopped selling digital goods. Similarly, the Company
believes that only companies providing valuable, up-to-the-minute, short-
life-time news with a minimal redistribution threat, such as the WALL
STREET JOURNAL will be successful at implementing revenue producing
subscription-model web sites.
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The Company believes the biggest concern in e-commerce is not
facilitating secure payments nor shipping of goods, but rather protecting
the lasting value of the publisher's digital product. Unless information
merchants are confident that their first few digital sales will not be
their last, they will not offer their most valuable intellectual properties
in digital form. As a result, copyright protection is of utmost importance
to the publishing community today.
COPYRIGHT PROTECTION. A number of companies offer copyright
protection products and services. Digital watermark companies, such as
Digimarc, embed an indelible copyright notice into a digital document, and
copy protection companies, such as Rainbow and Aztech, attempt to prevent
unauthorized re-distribution. The Company believes these approaches do not
solve the problem. Digital watermarks do not prevent piracy or
redistribution of electronic documents; they only make it possible to
prove, after the fact, that piracy has occurred. Moreover, because
watermarks offer few clues to the pirate's identity, they provide little
real deterrence. Watermarks are potentially useful in preventing commercial
webmasters from appropriating content that they do not own, but they
neither prevent end user piracy nor facilitate information commerce.
While copy protection or prevention techniques make piracy difficult,
they also inconvenience end-users who often need to backup and restore
data. For this reason, and because it prevents publishers from exploiting
redistribution, copy prevention has been soundly rejected in the software
market.
The Company believes that systems which prevent piracy while allowing,
and even exploiting, the exponential potential of end-user redistribution
are needed. This in turn requires that the content be consistently
protected.
DATA SECURITY. Data security companies (such as RSA) typically assume
that the sender and receiver of a document are trustworthy, whereas the
communication channel between them must be secured (for example, since you
and your bank have an interest in keeping your account information private,
protection is only required during transit). To achieve this, data
security companies use public-key and other sophisticated encryption
technologies. Once information is transmitted, however, such systems
typically leave the data in an unprotected, easy-to-pirate form.
In contrast, SoftLock.com's patented system does not assume that the
receiver is particularly trustworthy. The Company's system makes piracy
very difficult and compliance (payment and sanctioned-redistribution)
extremely gratifying. Using encryption technology (from RSA and other data
security companies), the Company's system ensures that the complete
document can only be decrypted in the presence of a valid, purchased, key.
Since the decryption is done only as the data is being rendered on the
screen, there is never an unprotected copy of the document to be found on
the user's hard drive. Since the key required is specific to the authorized
computer, the product automatically becomes a sample again when it is
redistributed (thus providing copyright protection). And since the sample
invites, facilitates, and instantly gratifies purchase from the next user
(and the next), the Company believes its system offers publishers an
effective and complete solution for Information commerce.
COMPETITORS. For at least five years, InterTrust has been developing
and publicizing a secure envelope system called the DigiBox, along with a
Rights Management system transaction processing
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system. Their vision is not only to facilitate purchase of digital goods
of ALL KINDS (documents, software, video, etc.) but to track and disperse
payments to ALL PARTIES in the so-called digital "value chain," which
consists of authors, editors, copy-editors, illustrators, proofreaders,
anthologists, and so on. InterTrust is not attempting to run the highly
complicated service business their technology is intended to support.
Rather InterTrust is recruiting partners who will purchase, integrate and
customize InterTrust's complex and expensive technologies, and then run
information-security, service businesses in specific markets (such as
software, or healthcare). None of InterTrust's systems have been publicly
demonstrated. InterTrust's first partner, originally called Rights
Exchange, is now called Reciprocal, Inc.
Because Reciprocal, Inc. is positioning itself as a service business
for information commerce, it is probably the Company's closest competitor.
Since Rights Exchange has yet to release its first system, however, it has
not been possible to test its efficacy against the claims made in the
marketing materials. Further, the Company believes that if InterTrust and
Reciprocal do eventually deliver a system that mirrors the Company's model
of a software-only system that locks digital content to particular
contexts, these companies will likely become candidates to license the
SoftLock.com patent.
EMPLOYEES
The Company currently employs two full time individuals in management
and sales and two part-time administrative employees in its Rochester, NY
office. The Company also employs one full-time manager, one full-time
marketing professional, one full-time administrative employee and one
full-time developer in its headquarters in Maynard, MA. The Company also
employs two full-time developers in home offices in Seattle, WA. None of the
Company's employees are the subject of a collective bargaining agreement.
The Company believes that relations with its employees are good.
CUSTOMERS
For the years ended December 31, 1998. and 1997, one customer
accounted for a total of approximately 37% and 50% of password revenues,
respectively.
RISK FACTORS
The Company's shares of Common Stock are speculative in nature and
involve a high degree of risk. Prospective investors should carefully
review all of the other information set forth in this Annual Report on Form
10-KSB and the Exhibits filed herewith.
LIMITED OPERATING HISTORY; ANTICIPATED FUTURE LOSSES
The Company was formed in 1989 but did not engage in any business
activities until its acquisition of SSI. Until recently, SSI was engaged
primarily in research and development activities. As a result, the Company
has only a limited operating history on which investors can base an
evaluation of the Company's business and prospects. The Company's
prospects must be considered in the light of the risks, uncertainties,
expenses and difficulties frequently encountered by companies in their
early stages
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of development, particularly companies in the new and rapidly evolving
markets, such as online commerce, using new and unproven business models.
In addition, the Company has suffered recurring losses from operations
since its inception and has recorded limited revenues to date and expect to
operate at a loss for the foreseeable future. For example, the Company
incurred a loss of ($609,232) for the fiscal year ended December 31, 1998,
and its accumulated retained earnings deficit is ($1,991,849) through
December 31, 1998. The following have been, and are likely to continue to
be, the principal causes of the Company's losses:
- start-up costs, such as the costs of establishing facilities,
building the Company's infrastructure and employing personnel;
- costs of developing the technology and systems used in the
Company's software;
- costs of developing the Company's brand and corporate identity,
including marketing and public relations costs.
DIFFICULTY IN PREDICTING RESULTS OF OPERATIONS
Planning the development of the Company's business, and accurately
predicting its future revenues and expenses, is difficult because the
Company's business and the industry in which it competes are in the early
stages of development. The Company also expects that, as in many new
industries, there will be intense competition. The Company's potential
customers and users are and will be intensely competitive. The Company's
potential customers may experiment with many different products until it
becomes apparent which products work best. At this early stage of the
Company's growth, its business and financial condition could be damaged
materially by cancellation or non-renewal of existing or future client
contracts. As a result, the Company's revenues could fluctuate during any
fiscal year, which may, in turn, cause the price at which the Company's
stock trades to be subject to substantial volatility. It is likely that in
one or more future quarters operating results will fall below the
expectations of securities analysts and investors. If this happens, the
trading price of the Company's Common Stock would almost certainly be
materially and adversely affected.
The Company expects to continue incurring net losses through 1999 as
it continues to develop products and expand its marketing strategy. There
can be no assurance that the Company will achieve profitability in the
future or maintain profitability, if achieved, on a consistent basis.
NEW BUSINESS MODEL; DEPENDENCE ON CONTINUED GROWTH OF ONLINE COMMERCE
The Company's business model is based on an analysis of consumer
behavior with respect to digital products and the development of an
alternative channel for the sale of digital content and a new transaction
processing infrastructure. The market for the purchase of products and
services over the Internet is a new and emerging market. The Company's
future revenues and profits and, in part, its business model depends on the
willingness of consumers to conduct online commerce and the demands of
companies for securely distributing proprietary content on the Internet.
Rapid growth in the use of and interest in the Internet and other online
services is a recent phenomenon. This growth may not continue. A
sufficiently broad base of consumers may not adopt, or continue to use, the
Internet as a
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medium of commerce. Demand for and market acceptance of recently introduced
products and services over the Internet are subject to a high level of
uncertainty, and there are few proven products and services. For the
Company's revenues to grow, consumers who have historically used
traditional means of commerce will instead need to elect to purchase
products and services online, and sellers of products and services will
need to adopt or expand use of the Internet as a channel of distribution.
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FINANCING
Based upon the Company's current operating plan, the Company
anticipates that its currently available funds will be sufficient to
satisfy its anticipated needs for working capital, capital expenditures and
business expansion through the release of the Company's next generation
technology in the summer of 1999. The Company anticipates the need to
acquire additional capital during calendar year 1999 to continue operations
and to fund additional product development and expansion plans. The
Although the Company is currently in discussion with a number of
prospective financing sources, the Company currently does not have any
commitments for additional financing. The Company cannot be certain that
additional financing will be available when and to the extent the Company
would need it, or that it would be available on favorable terms. If
adequate funds are not available on acceptable terms, the Company may not
be able to fund its expansion, develop or enhance its products or services
or respond to competitive pressures.
EFFECTIVE MANAGEMENT OF GROWTH
The Company's goal is to develop an alternative channel for the sale
of digital content through the development of new tools for publishers, a
new transaction processing infrastructure, and a number of related
marketing initiatives in 1999. The Company also may acquire other companies
which have businesses synergistic to that of the Company. Such expansion
could place a significant burden on the Company's existing resources, and
may require the Company to implement additional operating, software
development and financial controls, install additional reporting and
management information systems for transaction processing, customer
service, and financial reporting, improve coordination among marketing,
software development, and finance functions, increase capital expenditures
and to hire additional personnel. In addition, the Company would be
required to install additional reporting and management information systems
for transaction processing, customer service, and financial reporting.
There can be no assurance that the Company will be able to successfully
manage any substantial expansion of its business, including attracting and
retaining qualified personnel. A failure to do so could have a material
adverse effect on the Company's operating results.
PROPRIETARY RIGHTS AND LICENSES
The Company's success depends in part on its ability to enforce
intellectual property rights for its technology and software, both in the
United States and in other countries. The Company currently holds one
patent (US#5,509,970), which was issued on April 16, 1996, which covers the
computer and telecommunications technologies that implement the Company's
business. In addition to the protection provided by the patent, the
Company's software is protected by copyright and the use of contractual
restrictions (such as confidentiality agreements) and license agreements
that restrict the unauthorized distribution of the Company's proprietary
data. The Company may file additional applications for patents,
copyrights, and trademarks as management deems appropriate. While the
Company has
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attempted to limit unauthorized use of its software products or the
dissemination of its proprietary information, no assurance can be given
that
- the Company be able to retain its proprietary software rights and
prohibit the unauthorized use of proprietary information;
- any patents, copyrights, or trademarks the Company may obtain
will be sufficiently broad to protect its products, or that applicable law
will provide effective legal or injunctive remedies to stop infringement on
the Company's patent(s), trademarks, or copyrights;
- any patent, trademark, or copyright which the Company obtains
will not be challenged, invalidated, or circumvented;
- intellectual property rights which the Company obtains will
provide competitive advantages; or
- the Company's competitors will not independently develop
technologies or products that are substantially equivalent or superior to
those of the Company and that are not covered by the Company's issued patent.
In addition, if the Company's software products infringe upon the
rights of others, the Company may be subject to suit for damages or an
injunction to cease the use of such products. Except as noted under "Legal
Risks," below, the Company is not currently aware of any claims or
infringements of the Company's software products upon the rights of others.
LEGAL RISKS
The Company's wholly owned subsidiary, SSI, is one of approximately 18
defendants in an action in the United States District Court for the
Southern District of New York entitled E-DATA CORP. V. COMPUSERVE INC. ET
AL, filed August 23, 1995. The action alleged infringement of the so-called
Freeny patent. The plaintiff sought judgment declaring the validity
of its patent and further declaring that each of the defendants has
infringed the plaintiff's patent; enjoining further infringement; and
treble damages plus attorneys fees and costs and disbursements. On March
12, 1999, the Court entered a Stipulated Order and Judgment that, based on
the interpretation of the claims of the subject patent as determined by the
Court in its May 13, 1998 Order, SSI has not in the past infringed, nor is
it now infringing, any claim of the subject patent because no method,
system or apparatus of SoftLock includes any of five specific limitations
set forth in the Court's May 13, 1998 Order. Judgment has been entered in
SSI's favor and the patent owner's claims have been dismissed on the
merits. The patent owner has indicated that it intends to appeal the
Stipulated Order and Judgment. Although the Company and its counsel are
unable to predict the outcome of the appeal with any reasonable degree of
certainty, SSI and other defendants will continue to defend their positions
vigorously.
Other patent-related suits are possible, including legal actions which
might be pursued to litigate or defend the Company's patent, and the
outcomes and expenses cannot be predicted. Liability lawsuits are also
risks to be considered. The Company makes tools for protection of
intellectual
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property, but there can be no assurance that such protections will not be
breached, resulting in lost revenues for which the Company might be held
responsible. Similarly, the software which incorporates the Company's
tools can have adverse consequences which might lead to claims of liability
against the Company.
SUBSTANTIAL COMPETITION AND TECHNOLOGY
There are many software developers and companies concentrating their
efforts on the issues related to the digital distribution of software and
content. New technology and solutions that address these issues are
regularly being proposed and tested. While management believes that the
Company's method for the marketing, distribution and sale of content on the
Internet is unique, there are numerous competitive methods and business
models under which the Company's prospective clients could choose to
distribute and/or sell their content. Some of these alternative
methodologies are supported by companies with substantially greater
personnel, financial resources and an established customer base available
to them than does the Company. There can be no assurance that the Company
will be able to convince its prospective customers of the merits of the
Company's system or that the Company will be able to compete with these
competitors successfully.
DOMAIN NAMES
The Company currently holds the Internet domain name "softlock.com,"
as well as various other related names. Domain names generally are
regulated by Internet regulatory bodies. The regulation of domain names in
the United States and in foreign countries is subject to change.
Regulatory bodies could establish additional top-level domains, appoint
additional domain name registrars or modify the requirements for holding
domain names. As a result, the Company may not acquire or maintain the
"softlock.com" domain name in all of the countries in which the Company may
conduct business.
The relationship between regulations governing domain names and laws
protecting trademarks and similar proprietary rights is unclear.
Therefore, the Company could be unable to prevent third parties from
acquiring domain names that infringe or otherwise decrease the value of the
Company's trademarks and other proprietary rights.
LICENSES
In the future, the Company may license portions of its intellectual
property, including its issued patent, to third parties. To date, the
Company has granted a license to EarthWeb, LLC.
YEAR 2000 RISKS
The risks posed by Year 2000 issues could adversely affect the
Company's business in a number of significant ways. Additionally, the
Company faces risks to the extent that suppliers of products, services and
systems purchased by the Company, and others with whom the Company does
business on a worldwide basis, do not have business systems or products
that comply with the Year 2000 requirements. Additionally, the Internet
could face serious disruptions arising from the Year 2000 problem.
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The Company is currently expending resources to review its products
and services, as well as our internal management information systems in
order to identify and modify those products, services and systems that are
not Year 2000 compliant. The Company expects such modifications will be
made on a timely basis and does not believe that the cost of such
modifications will have a material effect on its operating results. The
Company, however, cannot guarantee that its own systems will be Year 2000
compliant in a timely manner, that any third parties who provide us with
products, services or systems will be Year 2000 compliant in a timely
manner, or that there will not be significant interoperability problems
among information technology systems which may utilize the Company's
technology. The Company also cannot guarantee that consumers will be able
to visit the Company's Web site without serious disruptions arising from
the Year 2000 problem. Given the pervasive nature of the Year 2000
problem, the Company cannot guarantee that disruptions in other industries
and market segments will not adversely affect the Company's business.
DEPENDENCE ON PERSONNEL
The Company's ability to carry out its proposed activities is
dependent, to a substantial degree, on a limited number of personnel,
including Keith Loris, (Chief Executive Officer and Chairman), Jonathan
Schull (President), Martin Presberg (Vice President of Operations), Robert
Shuchatowitz (Director of Engineering), Leila Dillon (Director of
Marketing), Edward Hazen (Director of West Coast Development) and Neal
Gronlund (Programmer). Of these, only Keith Loris and Jonathan Schull are
currently subject to employment agreements or employee non-compete
agreements. There can be no assurance that the Company will be able to
retain such personnel. The Company's success is also dependent on the
Company's ability to recruit and motivate high quality personnel. If the
Company fails to retain the services of one or more of these persons or if
the Company is unable to attract a sufficient number of skilled employees,
the Company's operations may be adversely affected. The Company does not
currently maintain any key man insurance on any of its officers, directors,
or significant employees.
NO DIVIDENDS
The Company has not paid any cash dividends on its Common Stock and
does not contemplate paying dividends in the foreseeable future. It is
management's present intention to retain future earnings, if any, for use
in the Company's business.
SHARES ELIGIBLE FOR FUTURE SALE
Of the 9,688,208 shares of our issued and outstanding Common Stock as
of the date of this Report, 9,276,666 shares are "restricted securities" as
that term is defined under Rule 144 promulgated under the Securities Act or
are restricted from sale by agreement with the Company. Of this amount,
7,097,266 shares will become available for sale under Rule 144 or otherwise
in late July 1999. Currently there is only a limited public market for the
Company's shares of Common Stock, and there can be no assurance that this
market will continue. Sales of substantial amounts of shares of Common
Stock by shareholders pursuant to Rule 144 or otherwise could adversely
affect the then market price of the Company's stock and make it more
difficult for the Company to sell equity securities in the future at a time
and price which it deems appropriate. The Company is unable to predict the
effect that
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sales made in the future under Rule 144 or otherwise may have on the then
prevailing market price of the Common Stock. The possibility exists that
the sale of these shares may have a depressive effect on the price of the
Company's Common Stock.
LOW VOLUME TRADING; POSSIBLE VOLATILITY OF STOCK PRICE
The Company's Common Stock is listed for trading on the OTC Bulletin
Board, has traded in only small volumes and has been subject to a certain
amount of volatility in the price. No assurance can be given that a more
active market will develop or that a shareholder will be able to liquidate
his/her investment without considerable delay, if at all. Even should a
more active market develop, the price may remain volatile. Factors such as
those discussed in this "Risk Factors" section may have a significant
impact upon the market price of the Company's Common Stock. Due to the low
price of the Company's Common Stock, many brokerage firms may not be
willing to effect transactions in the Company's securities, particularly
because low-priced securities are subject to a Securities and Exchange
Commission rule that imposes additional sales practice requirements on
broker-dealers who sell low-priced (generally those below $5 per share)
securities. Consequently, unless and until the market price for the
Company's Common Stock increases significantly, or until the Company's
Common Stock is admitted for trading on Nasdaq or another exchange,
brokerage firms may be reluctant to trade the Company's Common Stock.
PENNY STOCK REGULATION
If the Company is unable to meet the Nasdaq listing or maintenance
requirements and the price per share of the Company's Common Stock were to
drop below $5.00 per share, then the Company's Common Stock would become
subject to certain "penny stock" rules promulgated by the Securities and
Exchange Commission. Under such rule, broker-dealers who recommend "penny
stocks" to persons other than established customers and accredited
investors must make a special written suitability determination for the
purchaser and receive the purchaser's written agreement to a transaction
prior to sale. Securities are exempt from this rule if the market price is
at least $5.00 per share.
The SEC has adopted regulations that generally define a "penny stock"
to be an equity security that has a market price of less than $5.00 per
share, subject to certain exceptions. Such exceptions include equity
securities listed on Nasdaq and equity securities of a company that has:
(a) net tangible assets of at least $2,000,000, if such company has been in
continuous operation for more than three years, or (b) net tangible assets
of at least $5,000,000, if such company has been in continuous operation
for less than three years, or (c) average revenue of at least $6,000,000
for the preceding three years. Unless an exemption is available, the
regulations require the delivery, prior to any transaction involving a
penny stock, of a risk of disclosure schedule explaining the penny stock
market and the risks associated therewith.
CONTROL BY MANAGEMENT
The officers and directors own approximately 44.13% of the Company's
currently outstanding Common Stock. As a result, if the officers and
directors act together, they will have significant influence on the outcome
of all matters requiring shareholder approval (including the election and
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removal of directors and any merger, consolidation or sale of all or
substantially all of the Company's assets) and significant influence on the
management and affairs of the Company. Such influence could discourage
others from initiating potential merger, takeover or other change of
control transactions. As a result, the market price of the Company's
Common Stock could be adversely affected.
ANTI-TAKEOVER PROVISIONS
The Board of Directors of the Company has the authority to issue up to
2,000,000 shares of Preferred Stock, and to determine the price and the
terms (including preferences and voting rights) of those shares without
shareholder approval. Although the Company has no current plans to issue
shares of Preferred Stock, any such issuances could:
- have the effect of delaying, deferring or preventing a change in
control of the Company;
- discourage bids for the Common Stock at a premium, over the
market price; or
- adversely affect the market price of, and the voting and other
rights of the holders of, Common Stock.
The Company is subject to certain Delaware laws that could have the
effect of delaying, deterring or preventing a change in control of the
Company. In addition, certain provisions of the Company's Certificate of
Incorporation and By-laws, and the significant amount of Common Stock held
by the Company's officers and directors, could together have the effect of
discouraging potential takeover attempts or making it more difficult for
shareholders to change management.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under "Description of Business," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and elsewhere in this Report and in the Company's periodic
filings with the Commission constitute forward-looking statements. These
statements involve known and unknown risks, significant uncertainties and
other factors what may cause actual results, levels of activity, performance
or achievements to be materially different from any future results, levels of
activity, performance or achievements expressed or implied by such forward-
looking statements. Such factors include, among other things, those listed
under "Risk Factors" and elsewhere in this Report.
In some cases, you can identify forward-looking statements by
terminology such as "may," "will," "should," "could," "expects," "plans,"
"anticipates," "believes," "estimates." "predicts," "potential" or
"continue" or the negative of such terms or other comparable terminology.
Although we believe that the expectations reflected in the forward-
looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. Moreover, neither we nor
any other person assumes responsibility for the accuracy and completeness
of such statements.
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ITEM 2. DESCRIPTION OF PROPERTY.
Through December 31, 1998, the Company's principal offices were
located in Rochester, New York and consisted of approximately 1,500 square
feet. The offices were leased on a month-to-month basis, at a monthly
rental of $1,400, plus payment of certain incremental costs incurred by the
lessor and shared costs of the office complex. The Company may terminate
the lease upon 60 days written notice to the lessor.
On March 4, 1999, the Company signed a seven year lease on
approximately 15,600 square feet of office space at in Maynard, MA,
commencing June 1, 1999. The monthly rental payments for the first year of
the lease is $7,448, which escalates to $14,219 during the second year and
$21,114 for the third through the seventh year of the lease. The Company
is also obligated to pay additional amounts for the annual operation and
maintenance of the building and for taxes.
Management believes that the Company's insurance policies provide
adequate coverage for the contents at all facilities. The lessor of each of
the Company's leased facilities is responsible for the building structure
itself. The Company could have material adverse consequences if its
facilities were destroyed by fire or other disaster without a recovery
system in place.
ITEM 3. LEGAL PROCEEDINGS.
Other than as set forth below, the Company is not a party to any legal
proceedings which management believes to be material, and there are no such
proceedings which are known to be contemplated for which the Company
anticipates a material risk of loss.
SSI is one of approximately 18 defendants in an action in the United
States District Court for the Southern District of New York entitled E-DATA
CORP. V. COMPUSERVE INC. ET AL, filed August 23, 1995. The action alleges
infringement of the so-called Freeny patent. The plaintiff seeks judgment
declaring the validity of its patent and further declaring that each of the
defendants has infringed the plaintiff's patent; enjoining further
infringement; and treble damages plus attorneys fees and costs and
disbursements.
SSI answered the plaintiff's complaint and counterclaimed for a
declaratory judgment that the plaintiff's patent is invalid, unenforceable
and is not infringed by SSI. On May 13, 1998, Judge Barbara S. Jones
signed a 44-page Opinion & Order in the action. The Opinion & Order
provides the Court's determination of the claim scope under MARKHAM V.
WESTVIEW INSTRUMENTS, INC. On March 12, 1999, the Court entered a
stipulated order and judgment that, based on the interpretation of the
claims of the Freeny patent as determined by the Court, the Company has not
in the past infringed, nor is it now infringing, any claim of the Freeny
patent because no method, system or apparatus of the Company includes any
of five specific limitations set forth in the Court's May 13, 1998, Order.
Judgment has been entered in the Company's favor and the patent owner's
claims have been dismissed on the merits. The Stipulated Order and
Judgment leaves open the possibility that the patent owner may appeal the
May 13, 1998, Order and the patent owner has said that it plans to do so.
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Although the Company and its counsel are unable to predict the
ultimate outcome of the appeal with any reasonable degree of certainty, the
Company and the other defendants will continue to defend their positions
vigorously.
Other patent-related suits are possible, including legal actions which
might be pursued to litigate or defend the Company's patent, and the
outcomes and expenses cannot be predicted with confidence. Liability
lawsuits are also risks to be considered. The Company makes tools for
protection of intellectual property, but there can be no assurance that
such protections will not be breached, resulting in lost revenues for which
the Company might be held responsible. Similarly, the software which
incorporates the Company's tools can have adverse consequences which might
lead to claims of liability against the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On July 28, 1998, the following matters were approved by all of the
Company's directors and by shareholders holding 4,327,922 shares of Common
Stock, which represents a majority of the outstanding shares of Common
Stock of the Company, by consent, without calling a meeting of all of the
Company's shareholders, pursuant to applicable provisions of the General
Corporation Law of Delaware:
(a) An Amendment to the Company's Certificate of Incorporation to (i)
change the Company's name from Fieldcrest Corp to SoftLock.com,
Inc.; (ii) effect a 1 for 50 reverse split of the Company's
outstanding Common Stock and warrants; (iii) reduce the number of
shares of preferred stock from 20,000,000 shares, $.00001 par
value to 2,000,000, $.01 par value; and (iv) reduce the number of
authorized shares of Common Stock from 500,000,000, $.0001 par
value, to 25,000,000 shares, $.01 par value; and
(b) The adoption of the Stock Option Plan of 1998.
The Company did not provide its shareholders with an annual report for
the fiscal year ended December 31, 1997.
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PART II
ITEM 5. MARKET PRICE OF THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS.
MARKET INFORMATION. The Company's Common Stock began trading on the
Over the Counter Bulletin Board during the third quarter of 1996.
The following table sets forth the high and low bid prices for the
Company's Common Stock for the past two years. The quotations reflect
inter-dealer prices, with retail mark-up, mark-down or commissions, and
may not represent actual transactions.
High Bid Low Bid
-------- -------
1997
First Quarter $0.01 $0.01
Second Quarter $0.01 $0.01
Third Quarter $0.01 $0.01
Fourth Quarter $0.01 $0.01
1998
First Quarter $0.01 $0.01
Second Quarter $0.04 $0.01
Third Quarter (1) $2.00 $1.13
Fourth Quarter $5.63 $1.03
1999
First Quarter (2) $7.75 $4.50
________________________
(1) The acquisition of SSI was consummated and announced on July 28, 1998.
On August 10, 1998, the Company effected a one for fifty reverse stock
split.
(2) Through March 23, 1999.
On March 23, 1999, the last reported bid and asked prices for the
Common Stock were $7.75 and $8.625, respectively.
HOLDERS. As of March 19, 1999, the Company had approximately 164
holders of record of the Company's Common Stock.
DIVIDENDS. The payment of dividends by the Company is within the
discretion of its Board of Directors and depends in part upon the Company's
earnings, capital requirements, debt covenants and financial condition.
Since its inception, the Company has not paid any dividends on its Common
Stock and does not anticipate paying such dividends in the foreseeable
future. The Company intends to retain earnings, if any, to finance its
operations.
RECENT SALES OF UNREGISTERED SECURITIES. In March 1999, the
Company closed a private placement of 1,600,000 shares of Common Stock at
$1.25 per share to 59 accredited investors and two non-accredited
investors. The Company claims the exemption provided by Section 4(2) of
the Securities Act of 1933, as amended, for transactions not involving a
public offering and Rule 506 of
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Regulation D. Two brokerage firms, Rocky Mountain Securities, Inc. and
Harveston Securities assisted in the sale of the private placement, for
which they received commissions of $34,020 and $6,500, respectively.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Certain statements contained in this report, including statements
concerning the Company's future cash and financing requirements, and other
statements contained herein regarding matters that are not historical
facts, are forward-looking statements. Forward-looking statements involve
known and unknown risks and uncertainties which may cause the actual
results in future periods to differ materially from what is anticipated.
BACKGROUND
The Company is a developer and marketer of software tools and password
vending services to allow for the secure distribution and sale of software
or content over digital media or networks, including the internet. The
Company was classified as a development stage company until 1998, with its
activities directed primarily toward product research and development,
raising capital and marketing its products. As of 1998, the Company's main
thrust has shifted from primarily research and development to exploring and
tapping new customers to market their products.
CORPORATE STRUCTURE
The Company currently consists of SoftLock.com, Inc. and its wholly
owned operating subsidiary, SoftLock Services, Inc. ("SSI"). During the
year, the Company underwent a stock transfer and exchange of 7,097,266
shares of restricted common stock for all of the issued and outstanding
shares of SSI, wherein the owners of SSI became the majority owners of the
Company. Prior to this transaction, the Company operated as a shell
company organized to locate and acquire an operating company. All
operations presented herein are those of the acquired operating company.
This transaction also resulted in a change in reporting year from March 31
to December 31, the fiscal year end of SSI.
RESULTS OF OPERATIONS
Total revenues for the year ending December 31, 1998 ("1998"), were
$109,402, a 1.2% decrease compared to $110,774 earned during the year ended
December 31, 1997 ("1997"). This slight decrease can be attributed to the
nearly offsetting changes in license and custom software design fees, which
decreased by nearly 44% (approximately $32,000) from $73,600 in 1997 to
$41,500 in 1998, and an increase in revenue from the Company's primary
product, the sale of passwords and vouchers, of nearly 71% (approximately
$27,000), from $37,480 in 1997 to $64,041 in 1998, reflecting an increase
in both the number and value of passwords sold.
Gross profit was $86,236, or 78.8% of revenue in 1998, as compared
with $90,428, or 81.6% of revenue in 1997. Although gross profit as a
percentage of password sales increased for 1998, it was offset by the
decline in licensing sales which generate a higher contribution to gross
margin.
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Selling, general and administrative expenses totaled $718,350 for 1998
as compared with $924,029 for the preceding year, a decrease of 22.3%. The
primary reason for the decline relates to 1997 expenditures for outside
consultants engaged by the company to advise on corporate structuring and
financial strategies. Overall, outside consulting decreased by nearly
$220,000 (77.2%) from $281,600 in 1997 to $64,200 in 1998. In addition,
costs for 1997 include non-cash compensation of approximately $135,000.
Savings from the reduction in the use of these outside consultants have
been partially offset by the cost of regulatory compliance as a result of
the Company becoming an SEC reporting company in July of 1998 and the
hiring of additional key personnel in the fourth quarter of 1998.
Other income increased from $19,950 in 1997 to $24,616 in 1998. This
increase relates to increased interest income during the period mostly on
earned interest from cash balances and other sources which increased from
less than $1,000 in 1997 to over $5,500 in 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of liquidity has been proceeds from the
sale of securities in private placements, from which $559,000 was raised
during the year ended December 31, 1998 and $660,000 during the year 1997.
Cash used in operations totaled $511,000 for the year ended December 31,
1998, as compared with $775,000 for the preceding year. The company, which
was classified as a company in the development stage until 1998, has
incurred significant and recurring operating losses since inception,
including $609,232 in 1998 and $815,278 in 1997. In addition, at December
31, 1998, the Company had working capital (current assets minus current
liabilities) and stockholders' equity deficits of $22,147 and $6,671,
respectively, as compared to working capital and stockholders' equity
surpluses of $29,456 and 46,829 in 1997. The majority of the decrease in
working capital can be attributed to an increase in accrued expenses from
1997 to 1998.
In February 1999, the Company completed a private placement of its
Common Stock for $2,000,000. The net proceeds from the placement will be
used to finance continued operations, product development and marketing.
Management considers this amount to be sufficient to sustain the working
capital needs projected by its current business plan for the immediate
future. Management's plans contemplate additional capital raising
initiatives in order to continue its business plan. The Company is
currently in discussion with a number of investment bankers concerning an
institutional private placement of its equity securities later in the year.
The Company's future operating results will depend to a considerable
extent on its ability to rapidly and continuously develop, introduce, and
deliver existing and planned service products. Should the Company fail to
successfully complete the additional capital raising initiatives described
in the previous paragraph, it may be necessary to modify its business plan,
including the reduction or elimination of some current and planned software
development programs.
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YEAR 2000 READINESS DISCLOSURE
Based on the Company's assessment to date, the Company believes the
current versions of its software products and services are "Year 2000
compliant" that is, they are capable of adequately distinguishing twenty-
first century dates from twentieth century dates. New products are being
designed to be Year 2000 compliant. Although the Company's products have
undergone, or will undergo, the Company's normal quality testing
procedures, there can, however, be no assurance that the Company's products
will contain all necessary date code changes. Furthermore, use of the
Company's products in connection with other products which are not Year
2000 compliant, including non-compliant hardware and software may result in
the inaccurate exchange of dates and result in performance problems or
system failure. Any failure of the Company's products to perform,
including system malfunctions associated with the onset of year 2000, could
result in claims against the Company. However, success of the Company's
Year 2000 compliance efforts may depend on the success of its customers in
dealing with the Year 2000 issue.
Although the Company has not been a party to any litigation or
arbitration proceeding to date that involves Year 2000 compliance issues
with its products or services, there can be no assurance that the Company
will not in the future be required to defend its products or services in
such proceedings, or to negotiate resolutions of claims based on Year 2000
issues. The costs of defending and resolving Year 2000-related disputes,
regardless of the merits of such disputes, and any liability of the Company
for Year 2000-related damages, including consequential damages, could have
a material adverse effect on the Company's business, results of operations
and financial condition.
The Company's business depends on numerous systems that could
potentially be impacted by Year 2000 related problems. Those systems
include, among others: hardware and software systems used by the Company to
deliver products and services to its customers (including software supplied
by third parties); communications networks such as the world wide web upon
which the Company depends to generate product orders; the internal systems
of the Company's customers and suppliers; software products sold to
customers; the hardware and software systems used internally by the Company
in the management of its business; and non-information technology systems
and services used by the Company in the management of its business, such as
power, telephone systems and building systems.
The Company is currently in the process of evaluating its information
technology infrastructure in order to identify and modify any products,
services or systems that are not Year 2000 compliant. Based on its initial
analysis of the systems potentially impacted by conducting business in the
twenty-first century, the Company is applying a phased approach to making
such systems, and accordingly, the Company's operations, ready for the year
2000. Beyond awareness of the issues and scope of systems involved, the
phases of activities in process include: an assessment of specific
underlying computer systems, programs and hardware; renovation or
replacement of Year 2000 non-compliant technology; validation and testing
of critical systems certified by third-party suppliers to be Year 2000
compliant; and implementation of Year 2000 compliant systems. The table
below describes the status and timing of such phased activities.
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IMPACTED SYSTEMS STATUS TARGETED COMPLETION
Software products sold
to customers Completed
Hardware and software Testing and remediation Third Quarter 1999
systems used to deliver
products and services
Communication networks Assessment in process Fourth Quarter 1999
used to carry products
and provide services
Hardware and software Completed
systems used to manage
the Company's business
Non-information technology Systems upgraded or Fourth Quarter 1999
systems and services replaced, as appropriate,
testing and implementation
In the event that any of the Company's significant suppliers or
customers does not successfully and timely achieve Year 2000 compliance,
the Company's business or operations could be adversely affected. This
could result in system failures or generation of erroneous information and
could cause significant disruption to business activities. The Company is
reviewing what further actions are required to make all software systems
used internally Year 2000 compliant as well as actions needed to mitigate
vulnerability to problems with suppliers and other third parties' systems.
Such actions include a review of vendor contracts and formal communication
with suppliers to request certification that products are Year 2000
compliant.
COSTS TO ADDRESS YEAR 2000 ISSUES
The total cost of these Year 2000 compliance activities has not been,
and is not anticipated to be, material to the Company's business, results
of operations and financial condition. These costs and the timing in which
the Company plans to complete its Year 2000 modification and testing
processes are based on management's estimates. However, there can be no
assurance that the Company will timely identify and remedy all significant
Year 2000 problems, that remediation efforts will not involve significant
time and expense, or that such problems will not have a material adverse
effect on the Company's business, results of operations and financial
condition.
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<PAGE>
CONTINGENCY PLANS
The Company does not presently have a contingency plan for handling
Year 2000 problems that are not detected and corrected prior to their
occurrence. Any failure of the Company to address any unforeseen Year 2000
issue could adversely affect the Company's business, financial condition
and results of operations.
ITEM 7. FINANCIAL STATEMENTS.
The Financial Statements set forth on pages F-1 to F-13 of this
Report are incorporated herein by reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
The Company's principal independent accountants did not resign or
decline to stand for re-election nor were they dismissed during the
Company's two most recent fiscal years. The Company's financial statements
for the years ended December 31, 1998 and 1997 were audited by Comiskey &
Company, P.C., which had been the auditor for the Company (formerly known
as Fieldcrest Corporation), prior to the reverse acquisition of SSI.
There have been no disagreements between the Company and SSI and
Comiskey & Company, P.C. on matters of accounting and financial disclosure.
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PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
IDENTIFICATION OF DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
Set forth below is certain information regarding the directors,
executive officers and key employees of the Company as of the date hereof.
Service with the Company prior to July 1998 was rendered to SSI.
OFFICER OR
NAME AGE POSITION DIRECTOR SINCE
- ---- --- -------- --------------
Keith Loris 40 Chief Executive Officer and 1998
Chairman of the Board
Jonathan Schull, Ph.D. 46 President and Director 1992
Martin Presberg 35 Secretary, Vice President 1996
of Operations, Principal
Financial Officer
Rodney Conard 51 Director 1996
Francis J. Knott 52 Director 1996
Maurice LaFlamme 47 Director 1996
The Directors of the Company are elected to hold office until the next
annual meeting of shareholders and until their respective successors have
been elected and qualified. Officers of the Company are elected annually by
the Board of Directors and hold office until their successors are elected
and qualified.
The following sets forth biographical information concerning the
Company's Directors and executive officers for at least the past five
years.
KEITH LORIS, the Chief Executive Officer and Chairman of the Board,
has been an officer and director of the Company since September 1998. From
1995 until he joined the Company, Mr. Loris was vice president of marketing
and new business development at ServiceSoft Corporation of Boston, MA.
Previously, Mr. Loris was vice president of technology for the Desktop
Document Systems Division of Xerox Corporation from 1991 to 1995, and vice
president of technology for NYNEX Image Recognition Systems, Corp. from
1986 to 1991. Mr. Loris received a Bachelors Degree in Biology from Vassar
College in 1979 and a Masters Degree in Computer Science from New York
University in 1986.
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<PAGE>
JONATHAN SCHULL, PH.D. founded SSI in 1992, and has since served as
its president and as a director. Prior to founding SSI, Dr. Schull was a
tenured professor of Biological Psychology at Haverford College in
Haverford, PA. Dr. Schull received a B.S. from Reed College in 1975, and a
Ph.D. from the University of Pennsylvania in 1980.
RODNEY J. CONARD has been a Director of SSI since November 1996. In
1989, he founded Conard Associates, Inc., a consulting firm which helps
organizations achieve operational excellence and competitive success. Dr.
Conard holds a Ph.D. in Applied Performance Sciences and Organizational
Management. Prior to forming Conard Associates, Dr. Conard was a Director
with Coopers & Lybrand's Management Consulting Services in Boston, MA.
FRANCIS J. KNOTT has been a Director of SSI since November 1996. He
served and Chairman of the Board from October 1997 to July 1998. In 1992,
he founded and has since served as president of ViTAL Resources, Inc., an
information age strategy advisor to multimedia communication firms,
regulatory bodies, and municipal, state, provincial, and national
governments in the United States and Canada. Mr. Knott was the founding CEO
of VSI Enterprises, Inc. (NASDAQ), a developer and marketer of video
conferencing systems. He was a founding trustee and Board Member for 14
years of the Manufacturers Series Fund, Inc. Mr. Knott served from 1993-96
as the first Chairman of the Information Technology Board for the State of
Maryland. Mr. Knott recently served for three years as the President of the
International Teleconferencing Association (ITCA), and was inducted into
the Teleconferencing Industry Hall of Fame for his leadership contributions
to this emerging industry.
MAURICE LAFLAMME has been a Director of SSI since November 1996. As
an investor and adviser, Mr. LaFlamme was instrumental in restructuring the
company. From 1976 to 1981, Mr. LaFlamme developed, owned, and
successfully sold Taco Villa, Inc. From 1981 to the present, he has been a
private investor and financial consultant. Mr. LaFlamme was a director of
American Biophysics Corp. from 1992 to 1997.
MARTIN PRESBERG has been an employee of the Company since January
1996. He served as a Director of SSI from November 1996 to September 1998.
He has been Secretary, Vice President of Operations and Principal Financial
Officer of the Company since August 1998. Before joining SoftLock, Mr.
Presberg was Financial and Technical Manager of Grassroots, Inc., a retail
shoe store in Rochester, NY. From 1993 to 1996, Mr. Presberg worked in
video production, marketing research, and operations management. Mr.
Presberg received a B.A. degree from Cornell University in 1986 and an MBA
from the Rochester Institute of Technology in 1993.
COMMITTEES
The Company's audit committee consists of Francis J. Knott and Maurice
LaFlamme. The audit committee serves to oversee the financial management
and bookkeeping of the Company, and accepts the report from the Company's
independent auditors.
The Company also has a Compensation Committee, which currently
consists of Francis J. Knott and Rodney Conard. The Compensation Committee
reviews salaries, bonuses, and other forms of compensation for officers and
key employees of the Company and its subsidiaries, and establishes
salaries, benefits, and other forms of compensation for new employees. In
addition, the Compensation
30
<PAGE>
Committee reviews other matters concerning compensation and personnel as
the Board of Directors requests. The Compensation Committee will design the
Company's compensation to enable the Company to attract, retain, and reward
highly qualified executives, while maintaining a strong and direct link
between executive pay, the Company's financial performance, and total
stockholder return. The Compensation Committee believes that officers and
certain other key employees should have a significant stake in the
Company's stock price performance under programs which link executive
compensation to stockholder return.
SIGNIFICANT EMPLOYEES
The following employees make a significant contribution to the
business of the Company.
LEILA DILLON, Director of Marketing, has been with the Company since
February 1999. She has overall responsibility for developing and managing
the Company's public relations and investor relations efforts. Prior to
joining the Company, Ms. Dillon was the manager of marketing communications
at ServiceSoft Corporation, the leading provider of web-based customer
support technology. Ms. Dillon received a B.A. degree in arts from the
University of New Hampshire in 1993.
ROBERT SHUCHATOWITZ, Director of East Coast Development, has been with
the Company since December 1998. He has overall responsibility for managing
the development of the Company's next generation system due for release in
the summer of 1999. Mr. Shuchatowitz was the chief architect and project
leader for Xerox's character recognition products. Most recently, he had
his own software consulting firm. Mr. Shuchatowitz received a B.S. in
mathematics and physics from Hebrew University in Israel in 1976 and an
M.S.E. in Biomedical Engineering from Case Western Reserve University in
1979.
ED HAZEN, Director of West Coast Development, has been the Company's
chief programmer since he joined SSI in September 1994. From 1991 until
joining SSI, Mr. Hazen worked as a freelance programmer and consultant in
Rochester, NY. In 1982, Mr. Hazen founded Resources, Incorporated, solar
heating and energy conservation system consultants, designers and
installers in Rochester, NY. He served as president of Resources,
Incorporated from 1982 to 1991. Mr. Hazen received a B.S. degree from
Rensselaer Polytechnic Institute in 1981.
NEAL GRONLUND, Core Programmer, has been responsible for the
development of many of the Company's core algorithms and tools since June
1996. Mr. Gronlund worked as a programmer at the Boeing Corp. in Seattle,
WA from 1987 to 1997. Mr. Gronlund received a B.S. degree in Electrical
Engineering from the University of Washington in 1972 and a Master of
Software Engineering degree from Seattle University in 1986.
FAMILY RELATIONSHIPS
There are no family relationships between the officers and directors
of the Company.
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INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
No officer, director, significant employee, promoter or control person
of the Company has been involved in any event of the type described in Item
401(d) of Regulation S-B during the past five years.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Not applicable.
ITEM 10. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE
The following table sets forth information regarding compensation paid
to the Company's CEO and the other executive Officers of the Company who
received in excess of $100,000 of salary and bonus from the Company during
the fiscal year ended December 31, 1998:
<TABLE>
<CAPTION>
Long-Term
Annual Compensation ($$) Compensation Awards
------------------------ -------------------
Restricted
Name and Stock Options Other
Position Year Salary Bonus Awards & SARs Compensation
- -------- ---- ------ ----- ------ ------ -------------
($$) ($$) ($$) (##) ($$)
<S> <C> <C> <C> <C> <C> <C>
Jonathan F. Schull, 1998 $87,500(1) $21,633 -0- -0- $ -0-
President 1997 $91,000(2) $21,538 -0- -0- $ -0-
1996 $22,804 -0- -0- 2,156,781 $ -0-
Keith Loris, 1998 $32,192(3) -0- -0- 1,182,870(4) $ -0-
CEO 1997 -0- -0- -0- -0- $ -0-
1996 -0- -0- -0- -0- $ -0-
</TABLE>
________________________
(1) Of this amount, $19,814 has not been paid and has been accrued by the
Company.
(2) Of this amount, $28,500 was not paid and has been accrued by the Company.
(3) Mr. Loris was hired as CEO of the Company, effective September 1998.
(4) Represents options vesting over 5 years.
COMPENSATION OF DIRECTORS
Directors who are also employees of the Company receive no
compensation for serving on the Board of Directors. With respect to
Directors who are not employees of the Company ("Non-Employee Directors"),
the Company annually grants such Directors options to purchase Common Stock
for their services as Directors, and reimburses them for all travel and
other expenses incurred in connection with attending Board of Directors and
committee meetings.
For services as a Director during 1997, each Non-Employee Director
received options to purchase an aggregate of 67,420 shares of the Company's
Common Stock. The options are exercisable at any time. Directors received
one option to purchase 33,710 shares at $0.2403 per share, which expires
January 27, 2007, and one option to purchase 33,710 shares at $0.7787 per
share, which expires October 24, 2007.
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For services as a Director during 1998, each Non-Employee Director
received an option to purchase 36,407 shares of the Company's Common Stock,
and Francis J. Knott, the Chairman of the Board, received an option to
purchase 72,814 shares of Common Stock. These options are exercisable at
any time at $0.7787 per share and expire November 18, 2007.
For services during 1999, each Non-Employee Director, and an advisor
to the Board of Directors, received an option to purchase 30,000 shares of
the Company's Common Stock. The options are exercisable at any time at
$1.9621 per share and expire January 31, 2009.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
The Company has an employment agreement with Keith Loris, pursuant to
which Mr. Loris became CEO of the Company effective September 21, 1998, and
a Director. Under the agreement, Mr. Loris receives a base salary of
$135,000, and is eligible for annual cash bonuses equal to 25% of his base
salary at the discretion of the Board of Directors after December 31, 2000.
Mr. Loris was also granted options to purchase 1,182,870 shares of Common
Stock pursuant to the Company's 1998 Stock Option Plan, vesting over a five
year period in equal amounts at the conclusion of each anniversary of Mr.
Loris' employment with the Company; however, in the event the Company
receives $1 million or more in financing during the first two years of Mr.
Loris' employment, Mr. Loris' options will vest sooner, on the basis of
78,858 shares for each $1 million in financing up to a maximum of 236,574
shares for $3 million in financing. As of March 19, 1999, the Company had
raised $2 million in financing under this agreement. The agreement is to
continue in effect unless earlier terminated upon 15 days notice by either
the Company or Mr. Loris, by Mr. Loris' death or disability or by the
Company for cause.
Jonathan Schull, President, was the Company's CEO prior to the
appointment of Mr. Loris. The Company has an employment agreement with Dr.
Schull which provides that he will continue to devote his full time efforts
to the Company through July 31, 2000, in consideration of a salary of
$91,000 per year. From time to time during 1997 and 1998, Dr. Schull
agreed to have portions of his salary deferred rather than paid in cash in
order to apply available cash to the Company's pressing operational needs.
The deferred amounts have been accrued as an account payable by the
Company. In 1997 and 1998, Mr. Schull received bonuses in the amount of
$21,578 and $21,633, respectively, which resulted in net compensation to
Mr. Schull in an amount equal to the amounts Mr. Schull owed to the Company
for interest for 1997 and 1998 pursuant to a note payable by Mr. Schull to
the Company.
1998 STOCK OPTION PLAN
On July 28, 1998, the Company adopted the 1998 Stock Option Plan (the
"Plan") which provides for the issuance of options ("Options") to purchase
shares of Common Stock to key employees, officers, directors and
consultants of the Company. A total of 3,000,000 shares have been reserved
for grant under the Plan and Options to purchase 2,092,962 shares had been
granted as of December 31, 1998. The purposes of the Plan are to encourage
stock ownership by employees, officers, directors and consultants of the
Company so that they may acquire or increase their proprietary interest in
the Company, to reward employees, officers, directors and consultants for
past
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<PAGE>
services to the Company and to encourage such persons to become employed by
or remain in the employ of or otherwise continue their association with the
Company and to put forth maximum efforts for the success of the business of
the Company.
The Plan is administered by the Board of Directors. At its
discretion, the Board may determine the persons to whom Options may be
granted and the terms thereof. As noted above, the Board may issue Options
to members of the Board.
The terms of any Options granted under the Plan are not required to be
identical as long as they are not inconsistent with the express provisions
of the Plan. In addition, the Board may interpret the Plan and may adopt,
amend and rescind rules and regulations for the administration of the Plan.
Options may be granted as incentive stock options ("Incentive
Options") intended to qualify for special treatment under the Internal
Revenue Code of 1986, as amended (the "Code"), or as non-qualified stock
options ("Non-Qualified Options") which are not intended to so qualify.
Only employees of the Company, or any subsidiary of the Company, are
eligible to receive Incentive Options. The period during which Options may
be exercised may not exceed ten years. The exercise price for Incentive
Options may not be less than 100% of the fair market value of the Common
Stock on the date of grant; except that the exercise price for Incentive
Options granted to persons owning more than 10% of the total combined
voting power of the Common Stock may not be less than 110% of the fair
market value of the Common Stock on the date of grant and may not be
exercisable for more than five years. The exercise price for Non-Qualified
Options may not be less than 10% of the fair market value of the Common
Stock on the date of grant. The Plan defines "fair market value" as (i)
the mean between the highest and the lowest quoted selling price of the
Company's Common Stock as reported on a national securities exchange;
provided that at least one sale of the Company's Common Stock occurred on
such exchange on such date, and, if not, then the closing price on the last
preceding date on which at least one sale on such exchange did occur, or
(ii) if the shares of Common Stock are not listed on a national securities
exchange, the value as determined by the Board in accordance with its
discretion in making a bona fide, good faith determination of fair market
value.
The Plan contains provisions for proportionate adjustment of the
number of shares issuable upon the exercise of outstanding Options and the
exercise price per share in the event of stock dividends, recapitalizations
resulting in stock splits or combinations or exchanges of shares.
In the event of the proposed dissolution or liquidation of the
Company, or any corporate separation or division, including, but not
limited to, split-up, split-off or spin-off, merger or consolidation of the
Company with another company in which the Company is not the survivor, or
any sale or transfer by the Company of all or substantially all its assets
or any tender offer or exchange offer for or the acquisition, directly or
indirectly, by any person or group for more than 50% of the then
outstanding voting securities of the Company, the Board may provide that
the holder of each Option then exercisable will have the right to exercise
such Option (at its then current Option Price) solely for the kind and
amount of shares of stock and other securities, property, cash or any
combination thereof receivable upon such dissolution, liquidation,
corporate separation or division, merger or consolidation, sale or transfer
of
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<PAGE>
assets or tender offer or exchange offer, by a holder of the number of
shares of Common Stock for which such Option might have been exercised
immediately prior to such dissolution, liquidation, or corporate separation
or division, merger or consolidation, sale or transfer of assets or tender
offer or exchange offer; or in the alternative the Board may provide that
each Option granted under the Plan will terminate as of a date fixed by the
Board; provided, however, that not less than 30 days written notice of the
date so fixed will be given to each recipient, who will have the right,
during the period of 30 days preceding such termination, to exercise the
Option to the extent then exercisable. To the extent that Section 422(d)
of the Code would not permit this provision to apply to any outstanding
Incentive Options, such Incentive Options will immediately upon the
occurrence of the dissolution or liquidation, etc., be treated for all
purposes of the Plan as Non-Qualified Options and shall be immediately
exercisable as such.
If the recipient ceases to be an employee, officer or director of, or
consultant to, the Company or a subsidiary (other than by reason of death,
disability or retirement), other than for cause, all Options theretofore
granted to such recipient but not theretofore exercised will terminate
three months after the date the recipient ceased to be an employee, officer
or director of, or consultant to, the Company.
If the recipient ceases to be an employee, officer or director of, or
consultant to, the Company or a subsidiary or parent to the Company by
reason of termination for cause, all Options theretofore granted to such
recipient but not theretofore exercised will terminate on the date the
recipient ceases to be an employee, officer or director of, or consultant
to, the Company.
If a recipient dies while an employee, officer or director of or a
consultant to the Company, or within three months after termination thereof
(other an for cause), all Options theretofore granted to such recipient,
whether or not otherwise exercisable, unless earlier terminated in
accordance with their terms, may be exercised by the recipient or by the
recipient's estate or by a person who acquired the right to exercise such
Options by bequest or inheritance or otherwise by reason of the death or
disability of the recipient, at any time within one year after the date of
death of the recipient.
Options granted under the Plan are not transferable other than by will
or by the laws of descent and distribution or pursuant to a qualified
domestic relations order as defined by the Code or Title I of the Employee
Retirement Income Security Act of 1974, or the rules thereunder. Options
may be exercised, during the lifetime of the recipient, only by the
recipient and thereafter only by his legal representative.
The Board may suspend, terminate, modify or amend the Plan, but
without shareholder approval the Board may not materially increase the
number of shares as to which Options may be granted, change the eligibility
requirements for persons entitled to participate in the Plan or materially
increase the benefits to be received by any participant under the Plan.
The Board may not adversely affect any Option previously granted without
the consent of the participant. Unless sooner terminated, the Plan will
expire on July 28, 2008.
OPTION GRANTS
The following table sets forth certain information regarding Options
to purchase shares of Common Stock issued to executive officers of the
Company during the fiscal year ended December 31, 1998:
35
<PAGE>
OPTION GRANTS IN 1998
Number of Percent of
Securities Total Options
Underlying Granted to Exercise Expiration
Name Options Granted Employees in 1998 Price Date
- ---- --------------- ----------------- ----- ----
Martin Presberg 40,452 (1) 3.0% $0.8937 08-26-08
Keith Loris 1,182,870 (2) 86.4% $0.8909 09-21-08
______________________________
(1) The Options granted to Mr. Presberg vest over 3 years.
(2) The Options granted to Mr. Loris vest over 5 years.
OPTION EXERCISES AND YEAR END OPTION VALUES
The following table provides information on option exercises in fiscal
1998 by the executive Officers of the Company and the value of such
Officers' unexercised options at December 31, 1998:
AGGREGATED OPTION EXERCISES IN 1998
AND FISCAL YEAR-END VALUES
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Shares Options at Fiscal In-the-Money Options
Acquired Year-End(#) at Fiscal Year-End($)(1)
on Value --------------------------- ---------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Keith Loris 0 0 0 1,182,870 $ 0 $5,599,825
Martin Presberg 0 0 49,441 71,915 $248,076 $ 360,810
</TABLE>
______________________________
(1) Market value of underlying securities at fiscal year end, minus the
exercise price.
LONG-TERM INCENTIVE PLANS
The Company has no long term incentive plans other than its 1998 Stock
Option Plan.
REPORTING ON REPRICING OF OPTIONS/SARS
Not applicable.
36
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of the date hereof, the ownership
of the Company's Common Stock by (i) each director and executive officer of
the Company, (ii) all executive officers and directors of the Company as a
group, and (iii) all persons known by the Company to beneficially own more
than 5% of the Company's Common Stock.
SHARES OWNED PERCENT OF COMMON STOCK
NAME AND ADDRESS BENEFICIALLY (1) OWNED
- ---------------- ------------ -----
Jonathan Schull 2,484,612 25.65%
36 Brunswick St.
Rochester, NY 14607
Keith Loris 157,716(2) 1.60%
15 Oxbow Rd.
Concord, MA 01742
Francis J. Knott 288,787(3) 2.93%
14 Stony Meadow Ct.
Lutherville, MD 21093
Rodney J. Conard 534,215(4) 5.44%
74 Northeastern Blvd #22A
Nashua, NH 03062
Maurice LaFlamme 1,460,300(5) 13.48%
34 Weatherly Ct.
Jamestown, RI 02835
Martin Presberg 87,421(6) 0.90%
293 Mulberry St.
Rochester, NY 14620
Gene Schull 485,320 5.01%
245 West 107th St.
Apt. 11C
New York, NY 10025
All directors and 5,013,051 44.13%
executive officers
as a group (6 persons)
______________________
(1) Calculated pursuant to Rule 13d-3(d) of the Securities Exchange Act of
1934. Unless otherwise stated below, each such person has sole voting
and investment power with respect to all such shares. Under Rule
13d-3(d), shares not outstanding which are subject to options, Warrants,
rights or conversion privileges exercisable within 60 days are deemed
outstanding for the purpose of calculating the number and percentage
owned by
37
<PAGE>
such person, but are not deemed outstanding for the purpose of
calculating the percentage owned by each other person listed.
(2) Includes 157,716 shares vested under an option to purchase 1,182,870
shares at an exercise price of $0.8909 per share granted on September
21, 1998, and vesting over a 5-year period.
(3) Includes options to purchase 33,710 shares at $0.24 per share and
106,524 shares at $0.78 per share.
(4) Includes options to purchase 33,710 shares at $0.24 per share, 70,117
shares at $0.78 per share, and 30,000 shares at $1.96 per share.
(5) Includes options to purchase 1,011,307 shares at $0.18 per share,
33,710 shares at $0.24 per share,70,117 shares at $0.78 per share, and
30,000 shares at $1.96 per share.
(6) Includes options to purchase 31,462 shares at $0.24 per share and
33,710 shares at $0.78 per share. Does not include an additional
56,184 shares granted to Mr. Presberg vesting through the year 2001.
CHANGES IN CONTROL
There are no understanding, arrangements or agreements known by
management at this time which would result in a change in control of the
Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
TRANSACTIONS WITH MANAGEMENT AND OTHERS
In January 1997, the Company hired a company owned by Rodney J. Conard
to perform an executive search for the Company's CEO, which ultimately
resulted in Keith Loris being employed. The Company issued Mr. Conard
173,405 shares of the Company's Common Stock on the basis of $0.24 per
share in payment of the fee of $41,667. The shares were issued directly to
Mr. Conard at the request of Mr. Conard's company.
In July 1997, Francis J. Knott loaned the Company $10,000 at 12.5%
interest. The loan was due December 31, 1997. On December 1, 1997, Mr.
Knott received payment of the loan and accrued interest on the basis of
$.7787 per share.
In June 1996, Martin Presberg exercised an option to purchase 20,900
shares of the Company's Common Stock at $0.12 per share in consideration of
a note in the principal amount of $2,480 The note is nonrecourse, except as
to the shares of the Company's Common Stock, bears interest at 7.04% per
year and is due June 22, 2006.
In June 1996, Jonathan Schull exercised an option to purchase
2,156,780 shares of the Company's Common Stock at $0.12 per share in
consideration of a note in the principal amount of $255,920 The note is
nonrecourse, except as to the shares of the Company's Common Stock, bears
interest at 7.04% per year and is due June 22, 2006. In 1997 and 1998, the
Company awarded Dr. Schull cash bonuses in the amount of $21,538 and
$21,633 respectively to cover interest payments due under the loan.
38
<PAGE>
In October 1996, in consideration of the payment of $20,000, the
Company granted Maurice LaFlamme an option to purchase 1,011,307 shares of
the Company's Common Stock at $.18 per share. The option expires on October
25, 1999. The option provides Mr. LaFlamme certain registration rights for
the option and the underlying shares and contains cashless exercise
provisions.
ITEM 13. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K.
(a) The following documents are filed as a part of this Form 10-KSB:
Consolidated Financial Statements of SoftLock.com, Inc.:
Report of Independent Certified Public Accountants
Consolidated Balance Sheet - December 31, 1998
Consolidated Statements of Operations - Years ended December 31,
1998 and 1997
Consolidated Statements of Stockholders' Equity - Years ended
December 31, 1998 and 1997
Consolidated Statements of Cash Flows - Years ended December 31,
1998 and 1997
Notes to Consolidated Financial Statements - December 31, 1998
and 1997
Exhibits required to be filed are listed below and, except where
incorporated by reference, immediately follow the Financial Statements.
Exhibit
Number Description
------ -----------
2.1 Plan and Agreement of Reorganization among Fieldcrest Corp.,
SoftLock Services, Inc. and Jonathan Schull, dated May 22,
1998 (1)
3.1 Certificate of Incorporation, dated February 12, 1991 (2)
39
<PAGE>
3.2 Bylaws (3)
3.3 Amended and Restated Certificate of Incorporation, filed
with the State of Delaware on August 3, 1998 (4)
3.4 Amended and Restated Bylaws (5)
3.5 Amended and Restated Bylaws, dated March 1, 1999
10.1 Employment Agreement, dated July 27, 1998, between
SoftLock Services, Inc. and Jonathan Schull (6)
10.2 1998 Stock Option Plan
10.3 Employment Agreement, dated September 2, 1998, between
SoftLock Services, Inc. and Keith Loris
10.4 Lease, dated March 4, 1999, between SoftLock.com, Inc. and
Wellesley/Rosewood Maynard Mills Limited Partnership
10.5 Stock Option, dated October 25, 1996, granted by SoftLock
Services, Inc. to Maurice R. LaFlamme
21 Subsidiaries of the Company
27 Financial Data Schedule
________________________
(1) Incorporated by reference to Exhibit 2.1 to the Registrant's Annual
Report on Form 10-KSB for the fiscal year ended March 31, 1998.
(2) Incorporated by reference to Exhibit 3.1 to the Registrant's
Registration Statement on Form S-18 (No. 33-37513-D).
(3) Incorporated by reference to Exhibit 3.2 to the Registrant's
Registration Statement on Form S-18 (No. 33-37513-D).
(4) Incorporated by reference to Exhibit 3.1 to the Registrant's
Current Report on Form 8-K, dated July 28, 1998.
(5) Incorporated by reference to Exhibit 3.2 to the Registrant's
Current Report on Form 8-K, dated July 28, 1998.
(6) Incorporated by reference to Exhibit 10.1 to the Registrant's
Current Report on Form 8-K, dated July 28, 1998.
(b) During the quarter ended December 31, 1998, the Company did not
file any Current Reports on Form 8-K.
(c) Required exhibits are attached hereto or are incorporated by
reference and are listed in Item 13(a)(3) of this Report.
(d) Required financial statements are attached hereto and are listed
in Item 13 of this Report.
40
<PAGE>
SoftLock.com, Inc.
(fka Fieldcrest Corp.)
Financial Statements
December 31, 1998 and 1997
<PAGE>
CONTENTS
Page
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-1
BALANCE SHEET F-2
STATEMENTS OF OPERATIONS F-3
STATEMENTS OF STOCKHOLDERS' EQUITY F-4
STATEMENTS OF CASH FLOWS F-5
NOTES TO FINANCIAL STATEMENTS F-6 - F-13
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors and
Stockholders of SoftLock.com, Inc.
We have audited the accompanying balance sheet of SoftLock.com, Inc., (fka
Fieldcrest Corp.) (a Delaware company) as of December 31, 1998, and the
related statements of operations, stockholders' equity, and cash flows for
each of the two years then ended. These financial statements are the
responsibility of management. Our responsibility is to express an opinion
on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of SoftLock.com, Inc. (fka
Fieldcrest Corp.) as of December 31, 1998 and 1997, and the results of its
operations, its cash flows, and the changes in its stockholders' equity for
each of the two years then ended in conformity with generally accepted
accounting principles.
February 5, 1999
(Except Note 8, which
is dated March 12, 1999)
Denver, Colorado
COMISKEY & COMPANY
PROFESSIONAL CORPORATION
F-1
<PAGE>
SOFTLOCK.COM, INC.
(FKA FIELDCREST CORP.)
BALANCE SHEET
DECEMBER 31, 1998
ASSETS
CURRENT ASSETS
Cash $ 160,841
Accounts receivable 4,619
-----------
TOTAL CURRENT ASSETS 165,460
FURNITURE AND EQUIPMENT
Computers 42,428
Furniture and telephones 2,044
-----------
44,472
Less: accumulated depreciation 28,148
-----------
16,324
OTHER ASSETS
Deposits 1,058
-----------
TOTAL ASSETS $ 182,842
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 106,114
Accrued payroll 77,694
Obligations under capital lease - current 3,018
Excise taxes payable 781
-----------
TOTAL CURRENT LIBILITIES 187,607
OTHER LIABILITIES
Obligations under capital lease 1,906
STOCKHOLDERS' EQUITY
Common stock, $0.01 par value, 25,000,000 shares
authorized, 7,955,579 shares issued and outstanding 79,556
Preferred stock, $0.01 par value, 2,000,000
shares authorized, no shares issued or outstanding -
Additional paid-in capital 2,174,502
Retained earnings deficit (1,991,849)
Less: Note receivable - exercise of options (268,880)
-----------
(6,671)
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 182,842
===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
F-2
<PAGE>
SOFTLOCK.COM, INC.
(FKA FIELDCREST CORP.)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997
------------ ------------
REVENUES
Gross revenue, net of returns $ 109,402 $ 110,774
EXPENSES
Cost of revenues 23,166 20,346
----------- -----------
GROSS PROFIT 86,236 90,428
Selling, general & administrative expenses 718,350 924,029
----------- -----------
LOSS FROM CONTINUING OPERATIONS (632,114) (833,601)
OTHER INCOME (EXPENSE)
Interest income 24,523 19,950
Interest expense (440) (833)
Other income 93 -
----------- -----------
LOSS BEFORE INCOME TAXES (607,938) (814,484)
Income tax expense 1,294 794
----------- -----------
NET LOSS $ (609,232) $ (815,278)
=========== ===========
LOSS PER SHARE - BASIC $ (0.08) $ (0.13)
=========== ===========
WEIGHTED AVERAGE SHARES - BASIC 7,570,663 6,111,252
=========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
F-3
<PAGE>
SOFTLOCK.COM, INC.
(FKA FIELDCREST CORP.)
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
Additional Note receivable
Number Common paid-in Accumulated exercise
of shares stock capital deficit of options Total
---------- ---------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balances as of
January 1, 1997 5,661,342 $ 56,614 $ 954,541 $ (567,339) $ (268,880) $ 174,936
Issuance of common
stock for cash,
net of issuance
costs 793,826 7,938 651,849 659,787
Grant of options
for services 27,384 27,384
Net loss - - - (815,278) - (815,278)
---------- ---------- ---------- ---------- ----------- ----------
BALANCES AS OF
DECEMBER 31, 1997 6,455,168 64,552 1,633,774 (1,382,617) (268,880) 46,829
Issuance of common
stock for cash,
net of issuance
costs 642,099 6,421 493,579 - - 500,000
Issuance of common
stock in reverse
acquisition 788,580 7,886 (18,216) - - (10,330)
Debt converted to
stock 9,733 97 7,203 7,300
Issuance of common
stock for cash,
net of issuance
costs 60,000 600 58,162 58,762
Net loss - - - (609,232) - (609,232)
---------- ---------- ---------- ---------- ----------- ----------
BALANCES AS OF
DECEMBER 31, 1998 7,955,579 $ 79,556 $2,174,502 $(1,991,849) $ (268,880) $ (6,671)
========== ========== ========== ========== =========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
F-4
<PAGE>
SOFTLOCK.COM, INC.
(FKA FIELDCREST CORP.)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (609,232) $ (815,278)
Adjustments to reconcile
net loss to net cash used
by operating activies:
Depreciation 8,281 12,880
Increase in other assets 205 414
Increase in accounts payable 39,925 12,471
Increase in excise taxes payable 781 -
Increase in accrued compensation
and related liabilities 49,193 14,526
----------- -----------
Net cash used by operating
activities (510,847) (774,987)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (8,531) (8,570)
----------- -----------
Net cash used by investing
activities (8,531) (8,570)
CASH FLOWS FROM FINANCING ACTIVITIES
Obligation assumed under capital leases 4,924 -
Proceeds from issuance of common stock 558,762 659,787
Deficit acquired in reverse acquisition (3,330) -
Options issued in exchange for
services - non-cash - 27,384
----------- -----------
Net cash provided by financing
activities 560,656 687,171
----------- -----------
NET INCREASE (DECREASE) IN CASH 41,278 (96,386)
CASH, BEGINNING OF PERIOD 119,563 215,949
----------- -----------
CASH, END OF PERIOD $ 160,841 $ 119,563
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid during the year for interest $ 440 $ 833
=========== ===========
Cash paid during the year for
income taxes $ 513 $ 794
=========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
F-5
<PAGE>
SOFTLOCK.COM INC.
(FKA FIELDCREST CORP.)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
DESCRIPTION OF THE BUSINESS
SoftLock.com, Inc. (the Company) provides an alternative channel for
the distribution and sale of documents over the Internet.
SoftLock.com, Inc.'s software tools and services allow publishers to
freely distribute their content on the Internet. When end-users wish
to view the complete documents, they must purchase a password from the
Company's transaction processing system. Until January 1, 1998 the
Company was considered a development stage company under SFAS No. 7.
SoftLock.com, Inc. was incorporated in Delaware under the name
Fieldcrest Corp. As is more fully described in Note 5, the Company
effected various stock splits and a Plan and Agreement of
Reorganization with SoftLock Services, Inc. All share and per share
amounts have been restated to reflect these transactions.
The accompanying financial statements include all of the accounts of
SoftLock.com, Inc. and its wholly owned subsidiary SoftLock Services, Inc.
ACCOUNTING METHOD
The Company records revenues and expenses on the accrual method.
REVENUE RECOGNITION
Revenue from product sales is recognized when software tools and
passwords are provided to customers. The Company also enters into
license agreements for certain of its products. Revenues from such
agreements are recognized based on the terms of the agreement.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Expenditures for
renewals and improvements are capitalized while expenditures for
repairs and maintenance are charged to operations as incurred.
Depreciation and amortization of property and equipment are computed
by the straight-line method at rates adequate to allocate the cost of
applicable assets over their estimated useful lives as follows:
Computers 3 years
Furniture and telephone equipment 3-7 years
The Company reviews long-lived assets for impairment whenever events
or changes in circumstances indicate that the carrying value of the
asset is in excess of the sum of the undiscounted cash flows expected
to result from the use of the asset and its eventual disposition.
INCOME TAXES
Pursuant to Statement of Financial Accounting Standards (SFAS) No.
109, income taxes are provided for the tax effects of transactions
reported in the financial statements, and consists of taxes currently
due plus deferred taxes. Deferred income taxes are provided for
revenue and expense items reported in different periods for financial
statement and income tax purposes. The primary taxable and deductible
temporary differences are the Company's issuance of options for
services, resulting in additional compensation costs for financial,
which are not deductible for tax purposes, carrying value of assets,
and non-benefited operating loss carryforwards.
F-6
<PAGE>
SOFTLOCK.COM INC.
(FKA FIELDCREST CORP.)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
-----------------------------------------------------
STATEMENT OF CASH FLOWS
For the purpose of the statement of cash flows, the Company considers
all highly liquid debt instruments purchased with an original maturity
of three months or less to be cash equivalents.
ADVERTISING AND MARKETING
Advertising and marketing costs are generally charged to operations in
the year incurred. Total advertising and marketing costs were $13,755
and $15,360 in 1998 and 1997, respectively.
LOSS PER SHARE
Loss per share has been computed using the weighted average number of
shares outstanding. Shares issued in the reverse acquisition
described in Note 5 have been treated as outstanding since inception.
Diluted loss per share has not been presented, as the effect of
dilutive securities would decrease per share loss.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred. Such
expenses amounted to $104,453 and $90,852 in fiscal years 1998 and
1997, respectively.
FAIR VALUES OF FINANCIAL INSTRUMENTS
Unless otherwise indicated, the fair value of all reported assets and
liabilities which represent financial instruments (none of which are
held for trading purposes) approximate the carrying values of such
instruments.
CONCENTRATION OF CREDIT RISK
At certain times during the year, the Company has maintained cash
balances in excess of federally insured limits with a single
institution.
USE OF ESTIMATES
The preparation of the Company's financial statements, in conformity
with generally accepted accounting principles, requires the Company's
management to make estimates and assumptions that affect the amounts
reported in these financial statements and accompanying notes. Actual
results could differ from those estimates.
2. COMMITMENTS AND CONTINGENCIES
-----------------------------
CLASSIFICATION OF A GOING CONCERN
The company, which was classified as a company in the development
stage until 1998, has incurred significant and recurring operating
losses since inception, including $609,232 in 1998 and $815,287 in
1997. In addition, at December 31, 1998, the Company had working
capital and stockholders' equity deficits of $22,147 and $6,671,
respectively.
Subsequent to year-end, the Company raised approximately $1,925,000 in
a private placement of its common stock. Management considers this
amount to be sufficient to meet the working capital needs projected by
its business plan for the immediate future. Management's plans
contemplate additional capital raising initiatives in order to
continue its business plan. The company is currently in discussion
with a number of investment bankers concerning an institutional
private placement of its equity securities later in the year.
F-7
<PAGE>
SOFTLOCK.COM INC.
(FKA FIELDCREST CORP.)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
3. LEASE COMMITMENTS
-----------------
The Company leases its principal operating location under a month-to-
month operating lease agreement, which expires when 60 days notice is
given. The agreement provides for a monthly rental of $1,400 and also
requires the Company to pay certain incremental costs incurred by the
lessor and shared costs of the property. Office rent expense for each
of the years ended December 31, 1998 and 1997 totaled $16,800. The
Company also leases a copier under a non-cancelable operating lease
and reflects lease payments as expenses of the period to which they
relate. Total rental expense under this lease amounted to $890 for
the year ended December 31, 1998.
At December 31, 1998, the aggregate minimum rental payments due under
non-cancelable operating leases are as follows:
1999 $ 1,452
2000 1,452
2001 605
2002 -
----------
$ 3,509
==========
The Company also leases various pieces of equipment under capital
leases as follows:
Current Long-term
------------ ------------
Capital lease for computer equipment.
Lease payments consisting of principal
and interest of $268 due monthly.
Final payment June 1999. $ 1,796 $ -
Capital lease for computer equipment.
Lease payments of principal and
interest of $119 due monthly. Final
payment June 2001. 1,222 1,906
---------- ----------
$ 3,018 $ 1,906
========== ==========
Minimum payments on capitalized leases are as follows:
Due by
December 31, Amount
------------ ------
1999 $ 3,036
2000 1,428
2001 714
Thereafter -
----------
5,178
Less amount representing
interest 254
----------
$ 4,924
==========
F-8
<PAGE>
SOFTLOCK.COM INC.
(FKA FIELDCREST CORP.)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
4. INCOME TAXES
------------
The Company has Federal net operating loss carryforwards totaling
approximately $2 million which expire between 2012 and 2018.
The components of the provision for income taxes are as follows:
1998 1997
------------ ------------
Current income taxes paid or
payable $ 1,294 $ 794
Increase in deferred tax assets - -
---------- ----------
$ 1,294 $ 794
========== ==========
Deferred income taxes are provided on temporary timing differences
between financial statement and income tax reporting. The components
of deferred income tax assets and liabilities are as follows:
1998 1997
------------ ------------
Total deferred tax liabilities $ - $ -
Deferred tax assets
Option compensation costs 60,700 60,700
Assets 4,500 4,300
Non-benefited loss carryforwards 523,000 316,000
---------- ----------
Total deferred tax assets 588,200 381,000
Less: valuation allowance (588,200) (381,000)
---------- ----------
Net deferred tax assets $ - $ -
========== ==========
5. STOCKHOLDERS' EQUITY
--------------------
STOCK SPLITS
On January 23, 1997, the shareholders of SoftLock Services, Inc.
approved a one hundred and fifty to one stock split to the
shareholders of record as of January 23, 1997.
As of July 28, 1998, and in connection with the Plan and Agreement of
Reorganization described below, SoftLock Services, Inc. exchanged one
share of stock for 224.7348 shares of SoftLock.com, Inc (fka
Fieldcrest Corp.), and, on August 10, 1998, effected a 50 for 1 reverse
stock split. All share and per share amounts have been restated to
reflect these transactions retroactively to inception.
DEBT CONVERTED TO STOCK
During the third quarter of 1998, a total of 9,733 shares of common
stock were issued upon conversion of debt totaling $7,300.
F-9
<PAGE>
SOFTLOCK.COM INC.
(FKA FIELDCREST CORP.)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
5. STOCKHOLDERS' EQUITY (CONTINUED)
--------------------------------
STOCK OFFERING
On April 13, 1998, the Board of Directors approved the offering of
642,099 shares of the Company's Common Stock at a price of $0.78 per
share for a total of $500,000. The offering terminated in June 1998
upon the acceptance of an aggregate of subscriptions for $500,000.
On November 20, 1998, the Board of Directors approved the offering of
1,600,000 shares of the Company's Common Stock (the "Offering") at a
price of $1.25 per share for a total of $2,000,000. The offering was
completed during February 1999, upon the acceptance of an aggregate of
subscriptions for $2,000,000. Proceeds of the offering are expected
to be used for working capital and general business purposes.
PLAN AND AGREEMENT OF REORGANIZATION
As of July 28, 1998, the Company consummated a Plan and Agreement of
Reorganization (the "Agreement") whereby it acquired all of the issued
and outstanding shares of common stock of SoftLock Services, Inc. in
exchange for 7,097,266 shares of the Company's "restricted" Common
Stock. As a result, SoftLock Services, Inc. became the wholly owned
subsidiary of the Company, and the former shareholders of SoftLock
Services, Inc. became 90% shareholders in the Company. Existing
options of the SoftLock Services, Inc. were exchanged for options in
the Company for identical rights and in the same ratio as the exchange
of common shares.
The transaction has been accounted for as a reverse acquisition, with
SoftLock Services as the accounting acquirer. Fieldcrest has adopted
the fiscal year end of December 31, which is the reporting year of the
accounting acquirer.
NOTE RECEIVABLE - EXERCISE OF OPTION
In June 1996, key employees entered into promissory notes with the
Company totaling $268,880 in order to exercise options granted to
them. These loans are due June 2006, and bear interest an 7.04
percent per annum. Loans are secured by collateral pledge of the
shares purchased. For each of the years ended December 31, 1998 and
1997 the Company recognized $18,929 in interest revenue in connection
with these notes.
STOCK OPTION PLAN
In January 1997, the shareholders of SoftLock Services, Inc. approved
the 1996 Stock Option Plan (the "96 Plan"). When the 1998 Stock Option
Plan (the "98 Plan") was approved on July 28, 1998 by the shareholders
of SoftLock.com, Inc., the options issued by SoftLock Services, Inc.
under the 96 Plan were replaced by options to purchase shares of
SoftLock.com, Inc., and were deemed included in the 98 Plan. The
termination of the 96 Plan resulted in no changes to the vesting or
exercise provisions to the holders of options under that plan, except
that the number and price per share of the 96 options were adjusted
for the stock transfer and exchange and subsequent stock splits.
The 98 Plan was established as a compensatory plan to attract, retain,
and provide equity incentives to selected persons to promote the
financial success of the Company. A total of 3,000,000 common shares
have been reserved for grants under this plan. The options may be
granted as either incentive stock options (ISO's) or Non-Qualified
Stock Options (NQSO's). The Company has issued options for 1,368,343
and 724,619 shares of its common stock for the years ended December
31, 1998 and 1997, respectively, and has 907,038 options still
available for grant at December 31, 1998.
F-10
<PAGE>
SOFTLOCK.COM INC.
(FKA FIELDCREST CORP.)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
5. STOCKHOLDERS' EQUITY (CONTINUED)
--------------------------------
STOCK OPTION PLANS (CONTINUED)
Also outstanding at December 31, 1998, are 1,011,307 options,
originally issued by SoftLock Services, Inc., and replaced with
options to purchase shares of SoftLock.com Inc. These options were
issued and outstanding prior to the 96 Plan, and therefore have not
been included under the 98 Plan.
A summary of option activity is as follows (all values restated for
stock splits):
Weighted Weighted
Shares Average Average
Under Exercise Options Exercise
Option Price Exercisable Price
---------- ----------- ----------- ----------
December 31, 1996 1,011,307 $ 0.18 1,011,307 $ 0.18
Options granted 724,619 0.47 658,547 0.49
Option exercised - -
--------- --------- --------- ---------
Options outstanding
as of December
31, 1997 1,735,926 0.30 1,669,854 0.30
1997 options vesting
in 1998 - 22,024 0.24
Options granted 1,368,343 0.94 5,117 1.95
Options exercised - -
--------- --------- --------- ---------
Options outstanding
as of December
31, 1998 3,104,269 $ 0.58 1,696,995 $ 0.31
========= ========= ========= =========
The options have an exercise price range of:
Granted during 1997 $0.08 - 0.78
Granted during 1998 0.89 - 1.95
Outstanding at December 31, 1998 $0.08 - 1.95
All of the options granted expire 10 years from the date of grant and
have the following vesting characteristics:
Vested at
Number of options Vesting period December 31, 1998
----------------- -------------- -----------------
1,674,971 Immediately 1,674,971
207,428 3 years 22,024
39,000 4 years -
1,182,870 5 years -
--------- ---------
3,104,269 1,696,995
========= =========
F-11
<PAGE>
SOFTLOCK.COM INC.
(FKA FIELDCREST CORP.)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
5. STOCKHOLDERS' EQUITY (CONTINUED)
--------------------------------
PRO FORMA DISCLOSURE
The Company applies Accounting Principles Board No. 25, Accounting for
Stock Issued to Employees, and related interpretations in accounting
for its plan. As such, no compensation costs were recorded as of the
date of grant. The Company considered the effects of recognizing
compensation cost pursuant to the provisions of Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation,
(SFAS No 123). Using the Black-Scholes option pricing model, which
takes into account the exercise price of the options, expected life,
current price of the underlying stock, its expected volatility and
dividends, and the risk-free interest rate, net loss would have been
increased to the pro forma amounts as follows for the years ending
December 31:
1998 1997
----------------------- -------------------------
As Pro As Pro
Reported Forma Reported Forma
---------- ----------- ----------- -----------
Net Loss $(609,232) $(1,202,525) $(815,278) $(969,335)
========== ============ ========== ==========
The average fair value of options granted during fiscal 1998 and 1997
was $0.43 and $0.21, respectively. The fair value of options is
estimated on the date of grant using the Black-Scholes option-pricing
model with the following weighted average assumptions: risk-free
interest rate of 5.88 percent for fiscal 1998 and ranging from 6.01 to
6.58 percent for fiscal 1997; expected life of 10 years; dividend
yield percentage of 0%; and volatility of 15% for each of the two
years ended December 31, 1998.
STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME
The Financial Accounting Standards Board has recently released
Statement of Financial Accounting Standards No. 130 - Reporting
Comprehensive Income. SFAS 130 requires companies to present
comprehensive income (consisting primarily of net income items plus
other direct equity changes and credits) and its components as part of
the basic financial statements. For the year ended December 31, 1998,
the Company's financial statements do not contain any changes in
equity, other than investments by and distributions to shareholders,
that are required to be reported separately in comprehensive income.
6. MAJOR CUSTOMERS
---------------
For the years ended December 31, 1998 and 1997, one customer accounted
for a total of approximately 37 percent and 50 percent of password
revenues, respectively.
7. LEGAL MATTERS
-------------
SoftLock is one of a large group of defendants in an action in the
United States District Court for the Southern District of New York
entitled E-Data Corp. vs. CompuServe Inc. et al, filed August 23,
1995. The action alleges infringement of the so-called Freeny patent.
The plaintiff seeks judgment declaring the validity of its patent and
further declaring that each of the defendants has infringed the
plaintiff's patent; enjoining further infringement; and treble damages
plus attorney's fees and costs and disbursements. SoftLock has
answered the plaintiff's complaint and has counter-claimed for a
declaratory judgement that the plaintiff's patent is invalid,
unenforceable, and is not infringed upon by SoftLock.
F-12
<PAGE>
SOFTLOCK.COM INC.
(FKA FIELDCREST CORP.)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
7. LEGAL MATTERS (CONTINUED)
-------------------------
The Company is subjected to this and other litigation from time to
time in the ordinary course of business. Although the amount of the
liability, if any, with respect to such litigation cannot be
determined, in the opinion of management, such liability, if any, will
not have a material adverse effect on the Company's financial
condition, results of operations, or cash flows.
8. SUBSEQUENT EVENTS
-----------------
PRIVATE EQUITY PLACEMENT
Effective February 28, 1999, the Company completed its private
placement offering upon the acceptance of subscriptions for $2 million
(1.6 million shares).
RELOCATION OF CORPORATE HEADQUARTERS
As of March 4, 1999, the Company signed a lease for office space in
Maynard, Massachusetts, with lease payments to begin on or about June
1, 1999. The office space is approximately 15,500 square feet and
calls for rental payments of $1,526,850 over the next seven years as
follows:
Future minimum
Lease payments
as of December 31, Amount
------------------ ------
1999 $ 52,134
2000 136,770
2001 218,893
2002 253,370
Thereafter 865,683
----------
$1,526,850
==========
LEGAL PROCEEDINGS
On March 12, 1999, the court entered a stipulation order and judgement
that, based on the interpretation of the claims of the subject patent
as determined by the court in earlier orders, the Company has not in
the past infringed, nor is it now infringing on any of the provisions
established in the patent. Judgement has been entered in SoftLock's
favor and the present patent's owner's claims have been dismissed on
its merits by the court. As of the date of these financial
statements, the patent owner has stated that he again intends to
appeal this decision.
F-13
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
Date: March 29, 1999 SOFTLOCK.COM, INC.
By /s/ KEITH LORIS
-------------------------------
Keith Loris,
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signatures Title Date
---------- ----- ----
/s/ KEITH LORIS Chief Executive Officer March 29, 1999
- ----------------------- (Principal Executive Officer)
Keith Loris and Chairman of the Board
/s/ JONATHAN SCHULL President and Director March 29, 1999
- -----------------------
Jonathan Schull
/s/ MARTIN PRESBERG Vice President of Operations, March 29, 1999
- ----------------------- Secretary and Chief Financial
Martin Presberg Officer (Principal Financial Officer)
/s/ RODNEY CONARD Director March 29, 1999
- -----------------------
Rodney Conard
/s/ FRANCIS J. KNOTT Director March 29, 1999
- -----------------------
Francis J. Knott
/s/ MAURICE LAFLAMME Director March 29, 1999
- -----------------------
Maurice LaFlamme
EXHIBIT 3.5
Certified to be a true and correct copy of the
Bylaws of the Corporation, adopted by the
Board of Directors on March 1, 1999.
______________________________________________
BYLAWS
of
SOFTLOCK.COM, INC.
ARTICLE I
SHAREHOLDER MEETINGS
SECTION 1.1. ANNUAL MEETING. The annual meeting of the shareholders
shall be held within the six calendar months following the end of each
fiscal year of the Corporation, at such date and hour as may be fixed by
the Board, for the election of directors and for the transaction of such
other business as may properly be brought before the meeting.
SECTION 1.2. SPECIAL MEETINGS. Special meetings of the shareholders
may be held at any time in the interval between annual meetings. Special
meetings may be called by the Board, the Chairman of the Board, the
President, or by the Secretary upon the written request of the holders of
not less than twenty-five percent (25%) of the shares of stock outstanding
entitled to vote, which written request shall state the purpose or purposes
of the meeting. Shareholders requesting the meeting must pay, in advance,
the reasonably estimated cost of preparing and mailing notices of the
meeting.
SECTION 1.3. PLACE OF MEETINGS. Annual and special meetings of the
shareholders shall be held at the principal office of the Corporation or at
such other place within or without the State of New York as the Board or
other persons authorized to call such meetings may from time to time
determine and indicate in the notice.
SECTION 1.4. NOTICE OF MEETINGS. Written notice shall be given stating
the place, date and hour of all meetings of the shareholders. The notice
shall state the purpose or purposes of the meeting and shall indicate that
it is being issued by or at the direction of the person or persons calling
the meeting. A copy of the notice of any meeting shall be given, personally
or by mail, not less than ten (10) nor more than fifty (50) days before the
date of the meeting, to each shareholder entitled to vote at the meeting.
If mailed, notice shall be deemed to have been given when deposited in the
United States mail, postage prepaid, directed to each shareholder at his or
her last known address as it appears on the records of the Corporation, or,
if he or she shall have filed with the Secretary a written request that
notices be mailed to some other address, then directed to
<PAGE>
him or her at such other address. Notice must also be given to any
shareholder who, by reason of the action proposed at the meeting would be
entitled to receive payment for his or her shares, and the existence of
this right must be stated in the notice. No notice provided for in this
Section is required to be given to any shareholder who submits a signed
waiver of notice, in person or by proxy, whether before or after the
meeting. The attendance of any shareholder at the meeting, in person or by
proxy, who does not protest prior to the conclusion of the meeting the lack
of notice of such meeting, shall constitute a waiver of notice to the
shareholder. No notice of any adjourned meeting of shareholders need be
given, unless the Board fixes a new record date for the adjourned meeting.
SECTION 1.5. RECORD DATE. For the purposes of determining the
shareholders entitled to notice of or vote at a shareholder's meeting or
any adjournment thereof, the Board may fix a date of record which shall not
be more than fifty (50) days nor less than ten (10) days before the meeting
date. For the purpose of determining shareholders entitled to express
consent to or dissent from any proposal without a meeting, or for
determining shareholders entitled to receive payment of a dividend or the
allotment of any rights, or for any other action, the Board may fix a date
of record which shall not be more than fifty (50) days prior to such
action.
SECTION 1.6. QUORUM. At all meetings of the shareholders, except as
otherwise provided by law, there shall be present, in person or represented
by proxy, shareholders owning a majority in number of the shares of the
Corporation issued and outstanding and entitled to vote thereat, in order
to constitute a quorum; but if there be no quorum, the holders of the share
present or represented may, by majority vote, adjourn the meeting from time
to time, but not for a period of over thirty (30) days at any one time,
without notice other than by announcement at the meeting, until a quorum
shall attend. At any such adjourned meeting at which a quorum shall attend,
any business may be transacted which might have been transacted at the
meeting as originally called. When a quorum is once present, it is not
broken by the subsequent withdrawal of any shareholder.
SECTION 1.7. VOTING. At all meetings of the shareholders, each
shareholder entitled to vote thereat may vote in person or by proxy and
shall have one (l) vote for each share standing in his name on the books of
the Corporation, unless otherwise provided in the Certificate of
Incorporation. A plurality of votes cast shall be sufficient to elect
directors and a majority of votes cast shall be sufficient to take any
other corporate action, except as otherwise provided by law, the
Certificate of Incorporation, or the Bylaws.
SECTION 1.8. PROXIES. No shareholder shall enter into a voting trust
agreement, proxy or other type of agreement vesting in another person,
other than another shareholder of the Corporation, or an officer or
director of the Corporation, the authority to exercise voting power of any
or all of his or her shares. Every proxy shall be in writing, subscribed by
the shareholder or his or her duly authorized attorney-in-fact and dated.
No proxy which is dated more than eleven (11) months before the meeting at
which it is offered shall be accepted, unless such proxy shall, on its
face, name a longer period for which it is to remain in force.
-2-
<PAGE>
SECTION 1.9. CONDUCT OF MEETING. Meetings of the shareholders shall be
presided over by the Chairman determined in accordance with the Bylaw
provisions relating to duties and successors of officers, or in the absence
of all such officers, by a Chairman to be chosen at the meeting. The
Secretary of the Corporation shall act as Secretary of the meeting, if
present, otherwise the Chairman shall appoint a Secretary.
SECTION 1.10. ACTION WITHOUT A MEETING. Whenever shareholders are
required or permitted to take any action by vote, such action may be taken
without a meeting if permitted by the laws of the Company's State of
Incorporation or on written consent, setting forth the action so taken,
signed by the holders of all shares outstanding and entitled to vote
thereon. Such written consent shall have the same effect as a unanimous
vote of the shareholders entitled to vote thereon.
ARTICLE II
BOARD OF DIRECTORS
SECTION 2.1. ELECTION AND POWERS. The Board of Directors shall have
the management and control of the affairs and business of the Corporation.
The Board may act at any duly held meeting by the vote of a majority of the
directors present, or it may act by unanimous written consent of all
members of the Board if permitted by the Company's State of Incorporation.
The directors shall be elected by the shareholders at each annual meeting
of shareholders and each director shall serve until a successor is elected
and qualified unless his or her directorship be therefore vacated by
resignation, death, legal disqualification pursuant to Article V, removal
or otherwise.
SECTION 2.2. NUMBER. The number of directors constituting the entire
Board shall be such number, not less than three (3), as shall be fixed by
vote of a majority of the entire Board from time to time. In absence of
such action, the number of directors shall be three (3). Notwithstanding
the provisions of this Section, where all of the shares are owned
beneficially and of record by fewer than three (3) shareholders, the number
of directors shall be equal to the number of shareholders, unless otherwise
fixed by the Board, which may fix a greater number.
SECTION 2.3. VACANCIES. Vacancies and other openings in the Board,
created for any reason except removal of a director without cause, may be
filled by the Board or a majority of the directors then in office if less
than a quorum are in office.
SECTION 2.4. REMOVAL. At any meeting of the shareholders duly called,
any director may be removed from office with or without cause by vote of
the holders of a majority of the shares entitled to vote in the election of
directors, and another may be elected by the shareholders in the place of
the person so removed to serve for the remainder of the term.
SECTION 2.5. MEETINGS. A regular meeting of the Board shall be held as
soon as practicable after the adjournment of the annual meeting of
shareholders for the election of officers, and the transaction of such
business as may be properly presented, including the designation of times
and places for additional regular meetings of the Board during the ensuing
year. Special meetings
-3-
<PAGE>
of the Board shall be held at any time, upon call from the Chairman of the
Board, if any, the President, or at least one-third (1/3) of the directors.
SECTION 2.6. PLACE OF MEETINGS. All meetings of the Board shall be
held at the principal office of the Corporation, or at such other place,
within or without the State of New York as may from time to time be
determined by the Board or the person or persons authorized to call the
meeting.
SECTION 2.7. NOTICE OF MEETINGS. No notice need be given of a regular
meeting of the Board. Notice of the place, day and hour of every special
meeting shall be given to each director by personal delivery or by
telegraph or facsimile or e-mail or leaving the same at the director's
residence or usual place of business, at least one (1) day before the
meeting, or shall be mailed to each director, postage prepaid and addressed
to the director at his or her last known address according to the records
of the Corporation, at least three (3) days before the meeting. No notice
of any adjourned meeting of the Board need be given other than by
announcement at the meeting, subject to the provisions of Section 2.9 of
this Article.
SECTION 2.8. WAIVER OF NOTICE. Notice of a meeting need not be given
to any director who submits a signed written waiver thereof whether before,
during or after the meeting nor to any director who attends the meeting
without protesting, prior thereto or at its commencement, the lack of
notice to him or her.
SECTION 2.9. QUORUM. A majority of the directors in office, but in no
event less than one-third (1/3) of the entire Board shall be necessary to
constitute a quorum for the transaction of business at each meeting of the
Board; but if at any meeting there be less than a quorum present, a
majority of those present may adjourn the meeting from time to time without
notice other than by announcement at the meeting, until a quorum shall
attend. At any such adjournment at which a quorum shall be present any
business may be transacted which might have been transacted at the meeting
as originally called.
SECTION 2.10. PRESENCE AT MEETINGS. Any one or more members of the
Board or any committee thereof may participate in a meeting of the Board or
such committee, by means of a conference telephone or similar
communications equipment allowing all persons participating in the meeting
to hear each other at the same time. Participation by such means shall
constitute presence at a meeting.
SECTION 2.11. ACTION WITHOUT A MEETING. Any action required or
permitted to be taken any action by the Board of Directors or by any
committee thereof at a duly held meeting may be taken without a meeting if
all members of the Board of Directors or of the committee, as the case may
be, consent in writing to the adoption of resolutions authorizing the
action. Such resolutions and such written consents shall be filed with the
minutes of the proceedings of the Board of Directors or of the committee.
SECTION 2.12. COMPENSATION. Directors as such shall not receive any
stated compensation for their services, but by resolution of the Board a
fixed sum and expenses of
-4-
<PAGE>
attendance may be allowed for the attendance at each special or regular
meeting thereof. Nothing in this Section will be construed to preclude a
director from serving the Corporation in any other capacity and from
receiving compensation therefor.
SECTION 2.13. EXECUTIVE COMMITTEE AND OTHER COMMITTEES. The Board may,
in its discretion, by an affirmative vote of a majority of the entire Board
appoint an Executive Committee, or any other committee, to consist of three
(3) or more directors. Unless limited by the Board, or by law, the
Executive Committee shall have and may exercise all power and authority of
the Board in the management of the business and affairs of the Corporation,
and other committees shall have those powers conferred upon them by the
Board, except that no committee shall have power to act in those areas
specifically prohibited by law. Any committee shall have the power to act
by unanimous written consent of all of its members in accordance with the
Business Corporation Law of New York.
ARTICLE III
OFFICERS
SECTION 3.1. ELECTION OF OFFICERS. The officers of the Corporation
shall be a Chairman, a CEO, a President, a CFO, one or more Vice
Presidents, and a Secretary. The Board of Directors may appoint such other
officers, and assistant officers, as they may consider necessary, who shall
be chosen in such manner and hold their offices for such terms and have
such authority and duties as from time to time may be determined by the
Board of Directors. The salaries of all the officers of the Corporation
shall be fixed by the Board of Directors. One person may hold any two
offices, except that no person may simultaneously hold the offices of
President and Secretary. In all cases where the duties of any officer,
agent or employee were not prescribed by the Bylaws or by the Board of
Directors, such officer, agent or employee shall follow the orders and
instructions of the President.
SECTION 3.2. ASSISTANT AND SUBORDINATE OFFICERS. The Board may elect
one or more Assistant Treasurers, one or more Assistant Secretaries and
such other subordinate officers or agents as it may deem proper from time
to time, who shall hold office at the pleasure of the Board. The Board may
from time to time authorize the President to appoint and remove such
assistant and subordinate officers and agents and prescribe the powers and
duties thereof.
SECTION 3.3. REMOVAL. Any officer of the Corporation may be removed
with or without cause by the Board.
SECTION 3.4. COMPENSATION. The Board shall fix the compensation of all
officers of the Corporation who are elected by the Board. The Board may
authorize the President to fix the compensation of such assistant and
subordinate officers and agents as he is authorized to appoint and remove.
SECTION 3.5. CHAIRMAN OF THE BOARD. The Chairman of the Board, if
there be one, shall preside at all meetings of the shareholders and the
Board, and shall perform such other duties as the Board may direct.
-5-
<PAGE>
SECTION 3.6. PRESIDENT. The President shall be the Chief Executive
Officer of the Corporation and shall, subject to the direction to the
Board, have the general management and control of the affairs and business
of the Corporation. The President shall preside at all meetings of the
shareholders and the Board, if there be no Chairman of the Board, or in his
or her absence or inability to act.
SECTION 3.7. VICE PRESIDENTS. During the absence or incapacity of the
President, the Vice President, or the most senior Vice President in terms
of duration in office, if there be more than one, shall perform the duties
and exercise the functions of the President. Any one or more of the Vice
Presidents may be designated by the Board as an Executive Vice President.
At the request of the President or in his or her absence or during his or
her disability, the Executive Vice President shall perform the duties and
exercise the functions of the President. Each Vice President shall have
such other powers and duties as may be properly designated by the Board,
and the President.
SECTION 3.8. SECRETARY. The Secretary shall keep full minutes of all
meetings of the shareholders and of the Board in books provided for this
purpose. The Secretary shall see that all notices are duly given in
accordance with the provisions of the Bylaws or as required by law. The
Secretary shall be the custodian of the records and of the seal or seals of
the Corporation. The Secretary shall affix the corporate seal to all
documents, the execution of which on behalf of the Corporation, under seal,
is duly authorized by the Board, and when so affixed, may attest the same.
The Secretary shall have such other powers ad duties as may be properly
designated by the Board, and the President.
SECTION 3.9. TREASURER. The Treasurer shall keep correct and complete
books and records of account for the Corporation. Subject to the control
and supervision of the Board, and the President, or such other officer as
the President may designate, the Treasurer shall establish and execute
programs for the provision of the capital required by the Corporation,
including negotiating the procurement of capital and maintaining adequate
sources for the Corporation's current borrowings from lending institutions.
The Treasurer shall maintain banking arrangements to receive, have custody
of, and disburse the Corporation's moneys and securities. The Treasurer
shall invest the Corporation's funds as required, establish and coordinate
policies for investment in pension and other similar trusts, and provide
insurance coverage as required. The Treasurer shall direct the granting of
credit and the collection of accounts due the Corporation, including the
supervision of special arrangements for financing sales, such as time
payment and leasing plans. The Treasurer shall have such other powers and
duties as may be properly designated by the Board, and the President.
ARTICLE IV
SHARE CERTIFICATES
SECTION 4.1. FORM AND SIGNATURES. The interest of each shareholder of
the Corporation shall be evidenced by certificates for shares in such form
not inconsistent with law or the Certificate of Incorporation as the Board
may from time to time prescribe. The share certificates shall be signed by
the President or a Vice President and by the Secretary or an Assistant
Secretary or the Treasurer
-6-
<PAGE>
or an Assistant Treasurer, sealed with the seal of the Corporation, and
countersigned and registered in such manner, if any, as the Board may by
resolution prescribe. Where any share certificate is countersigned by a
transfer agent or registered by a registrar, other than the Corporation
itself or its employee, the signatures of any such President, Vice
President, Secretary, Assistant Secretary, Treasurer, or Assistant
Treasurer, and such corporate seal, may be facsimiles engraved or printed.
In case any officer who has signed or whose facsimile signature has been
placed upon such certificate shall have ceased to be such officer before
the share certificate is issued, such certificate may be issued by the
Corporation with the same effect as if such person had not ceased to be
such officer.
SECTION 4.2. TRANSFER OF SHARES. The shares of the Corporation shall
be transferred on the books of the Corporation by the registered holder
hereof, in person or by his or her attorney, upon surrender for
cancellation of certificates for the same number of shares, with a proper
assignment and powers of transfer endorsed thereon or attached thereto,
duly signed by the person appearing by the certificate to be the owner of
the shares represented thereby, with such proof of the authenticity of the
signature as the Corporation or its agents may reasonably require. Such
certificate shall have fixed thereto all stock transfer stamps required by
law. The Board shall have power and authority to make all such other rules
and regulations as it may deem expedient concerning the issue, transfer and
registration of certificates for shares of the Corporation.
SECTION 4.3. MUTILATED, LOST, STOLEN OR DESTROYED CERTIFICATES. The
holder of any certificates representing shares of the Corporation shall
immediately notify the Corporation of any mutilation, loss, theft or
destruction thereof, and the Board may, in its discretion, cause one or
more new certificates for the same number of shares in aggregate to be
issued to such holder upon the surrender of the mutilated certificate, or
in the case of loss, theft or destruction of the certificate, upon
satisfactory proof of loss, theft or destruction and the deposit of
indemnity by way of bond or otherwise in such form and amount and with such
sureties or securities as the Board may require to indemnify the
Corporation, its transfer agent and registrar, if any, against loss or
liability by reason of the issuance of such new certificates; but the Board
may in its discretion refuse to issue such new certificates save upon the
order of some court having jurisdiction in such matters.
SECTION 4.4. STOCK LEDGERS. The stock ledgers of the Corporation
containing the names and addresses of the shareholders and the number of
shares held by them respectively shall be maintained at the principal
office of the Corporation, or if there be a transfer agent, at the office
of such transfer agent, as the Board shall determine.
SECTION 4.5. TRANSFER AGENTS AND REGISTRARS. The Corporation may have
one or more transfer agents and one or more registrars of its stock or of
any class or classes of its shares whose respective duties the Board may
from time to time determine.
-7-
<PAGE>
ARTICLE V
INDEMNIFICATION
SECTION 5.1. INDEMNIFICATION. The Corporation shall indemnify (a) any
person made or threatened to be made a party to any action or proceeding by
reason of the fact that he or she, his or her testator or intestate, is or
was a director or officer of the Corporation and (b) any director or
officer of the Corporation who served any other company in any capacity at
the request of the Corporation, in the manner and to the maximum extent
permitted by the corporate law of the Company's State of Incorporation, as
amended from time to time; and the Corporation may at the discretion of the
Board indemnify all other corporate personnel to the extent permitted by
law.
SECTION 5.2. AUTHORIZATION. The provisions for indemnification set
forth in Section 5.1 hereof shall not be deemed to be exclusive. The
Corporation is hereby authorized to further indemnify its directors and
officers in the manner and to the extent set forth in (i) a resolution of
the shareholders, (ii) a resolution of the directors, or (iii) an agreement
providing for such indemnification, so long as such indemnification shall
not be expressly prohibited by the provisions of the corporate law of the
Company's State of Incorporation.
ARTICLE VI
FINANCES
SECTION 6.1. DIVIDENDS. Subject to law and to the provisions of the
Certificate of Incorporation, the Board may declare dividends on the stock
of the Corporation, payable upon such dates as the Board may designate.
SECTION 6.2. RESERVES. Before payment of any dividend, there may be
set aside out of any funds of the Corporation available for dividends such
sum or sums, as the Board from time to time, in its absolute discretion,
deems proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
Corporation, or for such other purpose as the Board shall deem conducive to
the best interest of the Corporation, and the Board may modify or abolish
any such reserve in the manner in which it was created.
SECTION 6.3. BILLS, NOTES, ETC. All checks or demands for money and
Notes or other instruments evidencing indebtedness or obligations of the
Corporation shall be made in the name of the Corporation and shall be
signed by the President or such other officer or officers or such other
person or persons as the Board may from time to time designate.
SECTION 6.4. VOTING SHARES HELD BY THE CORPORATION. Unless otherwise
determined by the Board, the President of the Corporation is hereby
designated as the officer of the Corporation authorized to vote any and all
shares of stock held by the Corporation in other domestic or foreign
corporations; he or she shall have the power and authority to vote such
shares in person or by proxy, or by written consents in lieu of formal
meetings.
-8-
<PAGE>
ARTICLE VII
AMENDMENTS
SECTION 7.1. POWER TO AMEND. The Board shall have the power to adopt,
amend or repeal the Bylaws of the Corporation by a majority vote of the
entire Board at any meeting, or by unanimous written consent of all members
of the Board. However, any Bylaws adopted by the Board may be amended or
repealed at any meeting of the shareholders.
SECTION 7.2. NOTICE OF AMENDMENT AFFECTING ELECTION OF DIRECTORS. If
any Bylaw regulating an impending election of directors is adopted, amended
or repealed by the Board, there shall be set forth in the notice of the
next meeting of shareholders for the election of directors, the Bylaw so
adopted, amended or repealed, together with a concise statement of the
changes made.
-9-
EXHIBIT 10.2
1998 STOCK OPTION PLAN
OF
SOFTLOCK.COM, INC.
1. PURPOSE. The purpose of this Stock Option Plan (the "Plan") is to
advance the interests of SoftLock.com, Inc. (the "Company") and its
shareholders by permitting the Company to provide, through options to
purchase the Common Shares, $0.01 par value ("Shares"), of the Company,
long-term incentives and rewards to directors, consultants, officers and
other key employees responsible for the success and growth of the Company
and to attract and retain such persons on a competitive basis. It is the
intent of the Company that such individuals be encouraged to obtain and
retain an equity interest in the Company and each optionee will be
specifically apprised of said intent.
2. EFFECTIVE DATE. The effective date of the Plan shall be the date
on which the Plan is adopted by the Board of Directors of the Company.
Options may be granted to optionees on and after such date, but all such
options shall be conditioned upon ratification of the Plan by the
shareholders within twelve months after the date of its adoption by the
Board of Directors.
3. SHARES OF STOCK SUBJECT TO THE PLAN. Subject to adjustment as
provided in Section 9(g) below, an aggregate of 3,000,000 Shares shall be
available for grant under the Plan. Such Shares may be authorized but
previously unissued Shares or Shares repurchased by the Company, including
Shares purchased in the open market. In the event that any outstanding
option under the Plan for any reason expires or is terminated, the Shares
allocable to the unexercised portion of such option may again be available
for subsequent option grants under the Plan.
4. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the
Board of Directors ("Board") of the Company, and the Board shall select the
optionees to whom options may be granted, determine the number of Shares to
be offered to each such optionee, determine when options may be exercised,
and interpret, construe and implement the provisions of the Plan.
Subject to the express provisions and limitations of the Plan, the
Board shall also have authority to construe the respective options and the
Plan, to prescribe, amend and rescind rules and regulations relating to the
Plan, to determine the term and provisions not specified in or incorporated
with the Plan to be included in the respective options (which need not be
uniform) and to make all other determinations necessary or advisable for
administering the Plan.
The Board may correct any defect or supply any omission or reconcile
any inconsistency in the Plan or in any option in the manner and to the
extent appropriate, and it shall be the sole and final judge in such
circumstances. All actions or determinations of the Board on the matters
referred to in this section shall be conclusive. No member of the Board
shall be liable for any action or determination made in good faith with
respect to the Plan or any option granted under it.
5. ELIGIBLE PERSONS. The class of persons eligible to receive
options under the Plan will consist of officers, directors, consultants and
key employees of the Company. In making its
<PAGE>
determination as to whether an option will be granted under the Plan and
the number of Shares to be subject to each option, the Board will take into
account the duties of the director, consultant, officer or employee, the
present and potential contributions of that person to the success of the
Company and other factors which the Board, in its discretion, consider to
be reasonable and appropriate in connection with accomplishing the purposes
of the Plan.
The Board also may authorize the granting of options to prospective
employees of the Company. In the case of a prospective employee, grant of
the option shall be on the condition of employment by the Company in a key
position, and the date of the grant of the option shall be the date such
employment begins or such later date as the Board may have specified when
authorizing the grant. If the Board shall so determine, additional options
under the Plan may be granted to optionees who hold or have held options
under this or other stock option plans of the Company, and options under
the Plan may be granted in substitution for options granted under this or
other stock option plans of the Company.
6. GRANT OF OPTIONS. Options may be granted to such eligible key
employees, consultants, directors, and officers, and in such amounts, as
the Board, in its discretion may from time to time determine. These options
may be either Incentive Stock Options within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code") or Non-Qualified
Stock Options (i.e., stock options which are not incentive stock options),
or a combination of both; provided, however, that Incentive Stock Options
shall be awarded only to employees of the Company or any subsidiary of the
Company. Options may contain dissimilar provisions provided that all such
provisions are consistent with the Plan.
The options shall be evidenced by Stock Option Agreements in such form
as the Board shall approve from time to time, which Agreements shall
conform to the Plan.
7. PROVISIONS OF INCENTIVE STOCK OPTIONS. Each Incentive Stock
Option granted under the Plan will contain the provisions of Section 9, and
in addition, such terms, conditions and restrictions as the Board deems to
be reasonable and appropriate and in the best interests of the Company,
including the following:
(a) NUMBER OF SHARES. Each option will specify the number of
Shares which may be acquired.
(b) PURCHASE PRICE. The option price per Share shall be not less
than 100% of the fair market value of the Company's Shares
at the time such option is granted, as determined in good
faith by the Board, provided that, in the event the option
holder owns more than 10% of the combined voting power of
all classes of stock of the Company or of a parent or
subsidiary of the Company ("Ten Percent Shareholder") at the
time of the grant, then the purchase price will be not less
than 110% of such fair market value. Subject to the
foregoing, the Board shall have full authority and
discretion to fix the option price and shall be fully
protected in so doing.
(c) FAIR MARKET VALUE LIMITATION. The fair market value
(determined as of the date the option is granted) of Shares
for which Incentive Stock Options are exercisable for the
2
<PAGE>
first time by an employee in any calendar year (under this
Plan or any other plan that provides for the granting of
Incentive Stock Options) may not exceed $100,000.
(d) DISQUALIFYING DISPOSITION. In the event of a disposition of
Shares acquired upon exercise of an option which is deemed
"disqualifying" under Section 422 of the Code, so as to
require the withholding of federal, state or local taxes,
the option holder agrees promptly to pay to the Company the
amount of such taxes if the Company is unable to withhold
the necessary sums.
8. PROVISIONS OF NON-QUALIFIED STOCK OPTIONS. Each Non-Qualified
Stock Option granted under the Plan will contain the provisions of Section
9 and in addition, such terms, conditions and restrictions as the Board
deems to be reasonable and appropriate and in the best interests of the
Company, including the following:
(a) NUMBER OF SHARES. Each option will specify the number of
Shares which may be acquired.
(b) PURCHASE PRICE. The purchase price of the Shares under each
option shall be determined by the Board in its sole
discretion. The purchase price may be less than the fair
market value of the Shares at the time of granting, but may
not be less than ten (10%) thereof.
(c) WITHHOLDING. Each option shall provide that the option
holder shall agree to pay to the Company upon exercise of
the option all federal, state and local taxes required to be
withheld. The Board may, nevertheless, determine to withhold
from the Shares to be issued that number of Shares valued at
their fair market value at the time, that would satisfy the
amount required to be withheld.
9. PROVISIONS APPLICABLE TO ALL STOCK OPTIONS.
(a) TERM. Each option granted pursuant to this Plan shall be
exercisable in full or in installments at such time or times
and during such periods as the Board, in its sole
discretion, may determine at the time such option is
granted, provided, however, that no option shall be
exercised after the expiration of ten (10) years from the
date it is granted and provided further that no incentive
stock option granted to a Ten Percent Shareholder shall be
exercisable more than five years from the time it is granted.
(b) EXERCISE AND PAYMENT. To exercise an option, the option
holder shall deliver to the Company a written notice
specifying the number of Shares being purchased accompanied
by payment in full for the Shares being purchased. Each
option will provide that the purchase price of any Shares
purchased upon exercise of the option shall be payable in
full on the exercise date, in cash or by check, or, in the
discretion of the Board, by delivery of Shares owned by the
option holder (with appropriate documents of transfer), by
surrender of exercisable options to purchase Shares, or by
any combination of the foregoing. Any Shares so delivered
shall be valued at the fair market value of the Shares on
such date. Any options so surrendered shall be valued
3
<PAGE>
at the difference between the fair market value of the
Shares at the time of surrender and the exercise price
thereof.
(c) TRANSFER. Each option by its terms will be exercisable,
during the lifetime of the option holder to whom it is
granted, only by the option holder and will not be
transferable otherwise than by will or the laws of descent
and distribution.
(d) TERMINATION EXCEPT DEATH. In the event that the directorship
or employment or other relationship underlying the issuance
of the option of an optionee is terminated for cause, such
optionee's option rights both accrued and future under any
then outstanding option shall be forfeited and terminated
immediately and may not thereafter be exercised to any
extent.
In the event that the directorship or employment or other
relationship underlying the issuance of the option of the
optionee is terminated for any reason other than cause, or
optionee's death, subject to the condition that no option
shall be exercisable after the expiration of ten (10) years
from the date it is granted, such optionee shall have the
right to exercise the option at any time within three (3)
months after such termination of directorship or employment
or other relationship underlying the issuance of the option
or resignation or removal from office, unless with respect
to non-qualified stock options the Board shall otherwise
provide. This right of exercise shall exist to the extent
the optionee's right to exercise such option has accrued
pursuant to subparagraph 9(a) of the Plan and had not
previously been exercised at the date of such termination
except that in the case of a permanent disability or a
retirement approved by the Board, the Board may accelerate
the vesting of such option at the time of the disability or
at the time the retirement is approved. The granting of an
option to an eligible person does not alter in any way the
Company's right to terminate such person's employment or
office or other relationship at any time for any reason, nor
does it confer upon such person any rights or privileges
except as specifically provided for in the Plan.
(e) DEATH OF OPTIONEE AND TRANSFER OF OPTION. If the optionee
shall die while a director of the Company or while in the
employ of the Company or while in office or within a period
of three (3) months after the termination, other than for
cause, of optionee's duties with the Company, and optionee
shall not have fully exercised the option, the option may be
exercised, subject to the condition that no option shall be
exercisable after the expiration of ten (10) years from the
date it is granted, to the extent that the optionee's right
to exercise such option had accrued pursuant to subparagraph
9(a) of the Plan at the time of optionee's death and had not
previously been exercised, (or to the extent that the Board
within thirty (30) days of the date of death shall have
accelerated the vesting of the option) at any time within
one (1) year after the optionee's death, by the executors of
administrators of the optionee or by any person or persons
who shall have acquired the option directly from the
optionee by bequest or inheritance.
4
<PAGE>
No option shall be transferable by the optionee otherwise
than by will or the laws of descent and distributions.
(f) ACCELERATION UNDER CERTAIN CIRCUMSTANCES. Notwithstanding
any provisions contained in this Plan or in a Stock Option
Agreement deferring the right of an optionee to exercise an
option, the option shall, at the discretion of the Board,
become fully vested and optionee shall be entitled to
exercise such option, in whole or in part, during the 30-day
period (i) following the first purchase of Shares of the
Company pursuant to a tender offer or exchange offer (other
than an offer by the Company) for all, or any part of, the
Company's Shares or (ii) commencing on the date of approval
by the shareholders of the Company of an agreement for (a)
a merger or consolidation or similar transaction in which
the Company will not survive as an independent corporation,
or (b) a sale, exchange or other disposition of all or
substantially all of the Company's assets.
(g) ADJUSTMENT UPON CHANGES IN CAPITALIZATION. In the event of
a reorganization, recapitalization, stock split, stock
dividend, stock distribution, combination of shares, merger,
consolidation, rights offering, or any other change in the
corporate structure or Shares of the Company, the Board
shall make such adjustment, if any, as it may deem
appropriate in the number and kind of Shares authorized by
the Plan, in the number and kind of Shares covered by the
options granted and in the option price. Any such adjustment
may provide for the elimination of any fractional shares
which otherwise might become subject to any option without
payment therefor.
(h) MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS. Subject to
the terms and conditions and within the limitations of the
Plan, the Board may modify, extend or renew outstanding
options granted under the Plan, or accept the surrender of
outstanding options under the Plan or under any other stock
option plan of the Company (to the extent not theretofore
exercised) and authorize the granting of new options under
the Plan in substitution therefor (to the extent not
theretofore exercised).
10. RIGHTS AS A SHAREHOLDER. No rights as a shareholder shall exist
with respect to any Shares covered by an option until the date of the
issuance of a stock certificate for such Shares. Stock certificates will
be issued within thirty (30) days of option exercise.
11. GOVERNMENT REGULATIONS. The Plan, the options and the Shares so
affected will be subject to all applicable federal and state statutes,
rules and regulations, including, without limitation, all applicable
federal and state securities laws. If, in the opinion of the Company's
counsel, the transfer, issue or sale of any Shares under the Plan is not
lawful for any reason, the Company will not be obliged to transfer, issue
or sell any Shares.
12. INVESTMENT PURPOSE. Each option under the Plan shall be granted
only on the condition that all purchases of Shares thereunder shall be for
investment purposes, and not with a view to resale or distribution, except
that the Board may make such provision in options granted under this Plan
as it deems necessary or advisable for the release of such condition upon
the registration
5
<PAGE>
with the Securities and Exchange Commission of Shares subject to the
option, or upon the happening of any other contingency warranting the
release of such condition.
13. RESTRICTIONS ON ISSUING SHARES. The exercise of each option shall
be subject to the condition that if at any time the Company shall determine
in its discretion that the listing, registration or qualification of any
Shares otherwise deliverable upon such exercise upon any securities
exchange or under any state or federal law, or that the consent or approval
of any regulatory body, is necessary or desirable as a condition of, or in
connection with, such exercise or the delivery or purchase of Shares
pursuant thereto, then in any such event, such exercise shall not be
effective unless such listing, resignation, qualification, consent, or
approval shall have been effected or obtained free of any conditions not
acceptable to the Company.
14. AMENDMENT AND TERMINATION OF THE PLAN. The Board may terminate
the Plan or make such modifications or amendments thereof as it shall deem
advisable, or in order to conform to any change in any law or regulation
applicable thereto, except that no such amendment or modification shall
change the number or characteristics of the Shares issuable under the Plan
(subject to adjustment pursuant to Section 9(g) hereof) unless such
amendment or modification shall have the approval of the holders of a
majority of the then outstanding Shares of the Company. No amendment or
modification shall apply to adversely affect any optionee with respect to
whom an option shall heretofore have been granted.
15. APPLICATION OF FUNDS. The proceeds received by the Company from
the sale of Shares pursuant to options may be used for any corporate
purposes.
16. NO OBLIGATION TO EXERCISE OPTIONS. The granting of an option
shall impose no obligation upon the optionee to exercise such option.
17. FAIR MARKET VALUE. For purposes of this Plan, the "fair market
value" of the Company's Shares on a given date shall be (i) if the Shares
are listed on a National Exchange, the mean between the highest and the
lowest quoted selling price of said Shares on such stock exchange on such
date, provided at least one sale of said Shares took place on such exchange
on such date, and, if not, then on the basis of the closing price on the
last preceding date on which at least one sale on such exchange did occur,
or (ii) if the Shares are not listed on a National Exchange, the value as
determined by the Board in good faith.
18. TIME OF GRANTING. Neither anything contained in the Plan or in
any resolution adopted or to be adopted by the Board or the shareholders of
the Company nor any action taken by the Board shall constitute the granting
of any option. The granting of an option shall take place only when a
written option agreement substantially in the form of the option agreement
which is attached hereto and marked Exhibit A shall have been duly executed
and delivered by or on behalf of the Company and the optionee to whom such
option shall be granted.
19. FINANCING. In the discretion of the Board, the Company may
guarantee bank loans or make loans to an option holder to finance the
option price of the shares purchased upon the
6
<PAGE>
exercise of an option and also to finance payment by the option holder of
income taxes incurred with such exercise upon the following terms and
conditions:
(a) TERM OF LOAN. Each loan or guaranty will extend for a
period of not more than five (5) years.
(b) PROMISSORY NOTE. Each loan will be evidenced by a
promissory note given by the option holder and for which the
option holder shall have full personal liability. Each such
note shall bear interest at such rate per annum as
determined by the Board which interest shall be not less
than the rate in effect for the Company's senior
indebtedness to a financial institution and shall be payable
at such times as determined by the Board but at least no
less frequently then annually. Payments of principal, or
installments hereof, need not be required by the terms of
the notes, but may be required thereby if so determined by
the Board. Principal and interest may be prepaid in whole
or in part, from time to time, without penalty. Each such
note shall in all events become due and payable without
demand on the fifth anniversary of the date of the note, or
upon the option holder's failure to pay any installment of
principal and interest when due or within 30 days
thereafter, or immediately upon the insolvency or bankruptcy
of the option holder, or within 30 days from the date of
termination of his employment or directorship or office for
whatever cause, excepting only death, disability and
retirement. In the event of the death of an option holder,
such note shall become due and payable without demand 9
months from the date of such death. In the event of the
disability or retirement of a participant such note shall
become due and payable without demand 3 months from the date
of such permanent disability or approved retirement.
(c) PLEDGE OF SHARES. Each note or guaranty will be secured by
a pledge of the shares purchased with the proceeds of the
loan which shall be deposited with the Company. Dividends
paid on shares subject to the pledge shall be first applied
against interest charges due upon the bank loan, or the note
secured, with any balance applied to reduce the principal
thereof. Regardless of any other provision of this Plan,
shares pledged to secure the guaranty or note may not be
withdrawn from the pledge unless the proportionate amount of
the guaranteed bank loan or the note scurried thereby shall
be immediately repaid.
(d) OTHER TERMS AND CONDITIONS. All such notes, guaranty and
pledges may contain such further terms and conditions
consistent with this Plan, including provisions for
additional collateral security, as may be determined by the
Board from time to time.
(e) APPROVAL BY SHAREHOLDERS. Approval and adoption of this
Plan by the stockholders of the Company shall constitute
full and complete authorization for any guaranty, loan or
interest reimbursement made to or on behalf of the option
holder.
(f) LOANS TO NON-EMPLOYEE DIRECTORS AND CONSULTANTS.
Notwithstanding anything contained herein to the contrary,
if at the time such loan is granted the Company's shares are
traded publicly, each note or guaranty representing a loan
or guaranty to a
7
<PAGE>
Non-Employee Director or Consultant shall be secured by a
pledge of shares as then applicable federal regulations may
require, or by such other or additional collateral security
as the Board deems appropriate and in the best interests of
the Company.
20. GOVERNING LAW. The Plan shall be construed and enforced in
accordance with the laws of New York State.
21. NO RIGHT TO CONTINUED EMPLOYMENT. Participation in the Plan shall
not give any employee any right to remain in the employ of the Company. The
Company reserves the right to terminate any participant at any time.
22. TERM OF PLAN. Options may be granted pursuant to the Plan from
time to time within a period of ten (10) years from the date the Plan is
adopted by the Board of Directors.
Date Plan adopted by Board of Directors: July 28, 1998
Date Plan ratified by Shareholders: July 28, 1998
8
EXHIBIT 10.3
SOFTLOCK SERVICES, INC.
EMPLOYMENT AGREEMENT
AGREEMENT made effective as of this 2st day of September, 1998 by and
between SoftLock Services, Inc., a Delaware corporation, with principal
offices at 399 Alexander Street, Rochester, New York (the "Company"), and
Keith Loris, residing at 15 Oxbow Road, Concord, Massachusetts (the
"Employee").
In consideration of the promises and mutual covenants herein set
forth, the Company and the Employee agree as follows:
ARTICLE 1: EMPLOYMENT TERMS
---------------------------
Section 1.1. Employment and Term. The Company hereby employs the
Employee, and the Employee accepts such employment, upon the terms and
conditions hereinafter set forth, for the period (the "Employment Term")
commencing on and as of September 21, 1998 and terminating as provided in
Section 2.3 hereof.
Section 1.2. Employment Services. The Employee shall devote his
full working time and effort to promote the business and affairs of the
Company and its Affiliates (hereinafter, as such term is defined in Section
2.18 hereof) as necessary in order to enable them to achieve their business
objectives. The Employee's principal assignment shall be to serve as Chief
Executive Officer of the Company. In this capacity, the Employee shall be
responsible for and shall also perform other duties and assignments which
are consistent with his responsibilities as Chief Executive Officer which
may be reasonably assigned to him from time to time by the Board of
Directors of the Company. In addition, the Board of Directors of the
Company will take the steps as are necessary to elect the Employee to a
seat on such Board of Directors to serve during each year of the Employment
Term. The Employee agrees that he will serve as a director of the Company.
Nothing in this Section 1.2 shall be deemed to prevent the Employee from:
(a) investing his assets in a manner not prohibited by Section
2.6 hereof, and in such form or manner as shall not require
any material services on his part in the operations or
affairs of the companies or other entities in which such
investments are made;
(b) serving on the board of directors of any other company,
subject to the prohibitions set forth in Section 2.6 hereof,
provided the Board of Directors of the Company shall have
approved such service in writing; or
(c) engaging in religious, charitable or other community or non-
profit activities which do not impair his ability to fulfill
his duties and responsibilities under this Agreement.
Section 1.3. Employment Compensation.
(a) Base Salary. For services rendered by the Employee under
this Agreement, the Company shall pay the Employee an initial annual
salary of $135,000.00 per annum, payable in equal semi-monthly
installments (the "Base Salary"). The Base Salary shall be subject to
review by the Board of Directors of the Company on or about January 1,
2000, and on or about each January 1 thereafter for so long as this
Agreement is in effect.
1
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(b) Incentive Bonus Compensation. For services rendered by the
Employee under this Agreement, the Company, by action of the Board of
Directors, shall establish an executive incentive bonus plan in which
the Employee shall participate in recognition of the Employee's
contribution to the overall performance of the Company ("Bonus").
This bonus will be based upon the accomplishment of specific
objectives, to be mutually established by the Board of Directors and
the Employee, and will provide the opportunity for additional cash
compensation equivalent to twenty-five percent of Employee's base
salary. This bonus is not guaranteed in part or in full, and
determination of Employee's accomplishments against these objectives
will be at the sole discretion of the board of directors. Such Bonus
shall be granted within ninety (90) days following the conclusion of
each calendar year commencing December 31, 2000, after assessment of
the Employee's and Company's performance pursuant to the criteria,
terms and conditions of the bonus plan to be established. The amount
of any Bonus which the Company may grant to the Employee from time to
time shall be in addition to his Base Salary and shall, under no
circumstances, be included in the Employee's Base Salary.
(c) Stock Options. The Employee shall be entitled to
participate in the SoftLock Services, Inc. 1996 Stock Option Plan
("Option Plan"). Grants under the Option Plan shall be in amounts
determined by the Option Plan administrators or Board of Directors of
the Company. The initial amount of stock which has been granted to
the Employee under the Option Plan, vesting in equal amounts at the
conclusion of each of the subsequent (5) five years, beginning
September 21, 1998, is (1,182,870) one million, one-hundred eighty-two
thousand, eight hundred and seventy shares. The purchase price of
Shares awarded to the Employee under this initial option award shall
be at a market value, to be determined no later than December 31,
1998. As an incentive to achieve specific financing objectives,
78,858 shares will become vested for each $1MM of financing secured,
up to a maximum of $3MM, (236,574 shares) within the first two years
of employment. These do not represent additional shares above the
1,182,870 granted in the option agreement; rather, they represent an
opportunity to accelerate vesting of up to twenty percent of those
shares.
Section 1.5 Benefits. The Employee will participate in employee
benefit programs provided by the Company and its Subsidiaries, if any.
Section 1.6 Withholding. The amount of payments to be made by the
Company to the Employee are set forth herein prior to the deduction of any
taxes or other amounts, and all such payments shall be made by the Company
to the Employee under this Agreement net of any tax or other amounts
required to be withheld by the Company under applicable law.
Section 1.7 Vacation. The Employee shall be entitled to vacation
and holiday plans under the same terms and considerations as they are
available to all Company employees, in accordance with Company policy.
ARTICLE 2: GENERAL PROVISIONS
-----------------------------
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<PAGE>
Section 2.1 Expense Account and Allowance. The Company agrees to
reimburse the Employee for all reasonable travel, entertainment and other
documented, itemized business expenses incurred by him in connection with
the performance of his duties under this Agreement; provided, however, that
the amount available for such travel, entertainment, and other business
expenses shall be consistent with expense reimbursement policies adopted by
the Company as in effect at the time of the incurrence of such expenses by
the Employee or as may be fixed in advance by the Company's Board of Directors.
Section 2.2 Location. The Employee shall perform services under
this Agreement at the Company's principal office or at such other location
or locations reasonably specified by the Company. The Employee shall also
make himself available to make reasonable business trips at the Company's
expense, both within and outside the United States of America, for purposes
of consulting with customers, agents, representatives and suppliers of the
Company and its Affiliates, as well as with other members of the Company's
management.
Section 2.3 Employment Term; Termination.
(a) The Employment Term shall run indefinitely, unless
terminated pursuant to the following provisions of this Section 2.3.
(b) The Employment Term shall terminate (i) at the death or 30
days after the Permanent Disability (as hereinafter defined) of the
Employee, (ii) at the election of the Company, for Cause (as
hereinafter defined), or (iii) at the election of either the Company
or the Employee upon fifteen (15) days' prior written notice to the
other.
(c) "Permanent Disability", for purposes of this Section 2.3,
shall mean any physical or mental incapacitation which materially
hinder the Employee from performing the responsibilities of his
assigned duties.
(d) "Cause", for purposes of this Section 2.3, shall mean any of
the following, as determined by the majority vote of the Board of
Directors of the Company: (i) refusal of the Employee to perform his
duties hereunder or other material breach by the Employee of the terms
of this Agreement; (ii) any substantial dishonesty by the Employee in
connection with the performance of his duties hereunder; or (iii) any
conviction of, or plea of guilty by, the Employee with respect to any
crime, which conviction or plea is likely in the reasonable judgment
of the Board of Directors of the Company to adversely affect the
Employee's professional reputation, the reputation of the Company or
of any other member of the Group or the ability of the Employee to
perform his duties satisfactorily hereunder.
(e) The Company's right of termination pursuant to this Section
2.3 shall be in addition to, and shall not affect, its rights and
remedies under any other provisions of this Agreement or under
applicable law, and all such rights and remedies shall survive
termination of this Agreement and the employment of the Employee
hereunder. Nothing herein shall be deemed to constitute a waiver by
the Employee of any rights he
3
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may have under applicable laws.
(f) In the event of termination of employment pursuant to the terms
of this Section 2.3, the Employee shall have no right to receive any
compensation or fees for any period subsequent to the date of such
termination; provided that;
(i) in the event such termination is due to death or
Permanent Disability, the Company shall pay the
Employee or his estate, as the case may be, a pro tanto
portion of the Bonus, if any, for the year in which
such termination occurs; and
(ii) in the event that such termination is made by the
Company pursuant to Section 2.3(b)(iii) hereof, the
Company agrees that during the Severance Period (as
such term is defined below) it will continue to pay the
Employee his then current Base Salary and will provide
to the Employee continuation of benefits provided under
the SoftLock employee benefits program.
(g) "Severance Period", for purposes of this Section 2.3, shall mean
the period commencing on the date of such termination and ending: six
(6) months thereafter, or on the date on which the Employee finds
permanent employment if such employment occurs during the Severance
Period specified in this paragraph.
(h) The obligations of the Employee pursuant to Sections 2.4 and
2.5 of this Agreement shall survive the termination for any reason of
the Employment Term. The obligations of the Employee pursuant to
Section 2.6 hereof shall survive the termination of this Agreement as
provided for in Section 2.6.
Section 2.4 Confidential Information.
(a) The Employee hereby agrees to hold and maintain confidential and
private all papers, plans, drawings, specifications, methods, processes,
techniques, shop practices, formulae, customer lists, personnel and
financial data, plans, trade secrets and all proprietary information
belonging to the Company or any Affiliate thereof of which the Employee may
have knowledge or acquire knowledge whether prior to, during or after the
termination of the Employment Term, and to maintain as confidential and
secret any new processes, formulations, designs, devices, research data,
machines or compositions of matter of the Company or of any of its
Affiliates or of any persons granting rights to the Company or any of its
Affiliates revealed to the Employee or discovered, originated, made or
conceived by the Employee in connection with the furnishing of employment
and consulting services to the Company or any of its Affiliates.
(b) The Employee hereby agrees that he shall not at any time, either
during or subsequent to the Employment Term, disclose or divulge to any
person, other than to the Company's or any of its Affiliates' officers and
other employees as required by the Employee's duties under this Agreement
and to third parties when required in the ordinary course of business of
the Company, any of the information specified in Section 2.4(a) above or
any trade or business secrets or any other confidential information
belonging to the
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Company or any of its Affiliates of which the Employee may have or acquire
knowledge.
(c) Notwithstanding anything to the contrary set forth above, the
confidentiality and nondisclosure provisions contained in this Section 2.4
shall not apply to any information or data, if and when such information or
data becomes a matter of public knowledge through no act or omission of the
Employee or to any information or data which was already known by the
Employee or the other party in question other than as a result of a breach
of this Agreement.
(d) Immediately upon the Company's request or promptly upon
termination for any reason or expiration of this Agreement, the Employee
shall deliver to the Company all memoranda, notes, records, reports,
photographs, drawings, plans, papers or other documents made or compiled by
the Employee in the course of his services to the Company or any of its
Affiliates or made available to the Employee during the course of his
services to the Company or any of its Affiliates which are in the
possession of or under the control of the Employee, and any copies or
abstracts thereof, whether or not of a secret or confidential nature, and
all such memoranda or other documents shall, during and after the
termination of the Employment Term, be deemed to be and shall be the
property of the Company.
Section 2.5. Intellectual Property.
(a) Any and all inventions, improvements, ideas and innovations,
whether or not patentable, which the Employee may invent, discover,
originate, make or conceive during his services to the Company or any of
its Affiliates, whether prior to or during the Employment Term, either
solely or jointly with others, and which in any way relate to or are or may
be used in connection with the business of the Company or any of its
Affiliates shall be, to the extent of the Employee's interest therein, the
sole and exclusive property of the Company or such Affiliate and the
Employee's interest therein shall be assigned by the Employee to the
Company or such Affiliate, as the case may be, or to the Company's or such
Affiliate's nominee(s). The Employee, upon the request and at the expense
of the Company, shall and shall use his best efforts to cause any such
other person(s) to promptly and fully disclose each and all such
discoveries, inventions, improvements, ideas or innovations to the Company,
the applicable Affiliate or any nominee(s) thereof. Further, the Employee,
upon the request and at the expense of the Company, shall and shall use his
best efforts to cause any such other person(s) to, assign to the Company or
the applicable Affiliate, without further compensation therefor, all right,
title and interest in and to each and all such discoveries, inventions,
improvements, ideas or innovations which are reduced to writings, drawings
or practice within two (2) years after the termination of the Employment Term.
(b) The Employee further agrees to execute at any time, upon the
request and at the expense of the Company, for the benefit of the Company,
any of its Affiliates or any nominee(s) thereof, and all appropriate
applications, instruments, assignments and other documents, which the
Company shall deem necessary or desirable to protect its (or any of its
Affiliate's) entire right, title and interest in and to any of the
discoveries, inventions,
5
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improvements, ideas and innovations described in Section 2.5(a) hereof.
(c) The Employee agrees, upon the request and at the expense of the
Company or any person to whom the Company or any of its Affiliates may have
granted or grants rights, to execute any and all appropriate applications,
assignments, instruments and papers, which the Company shall deem necessary
for the procurement in the United States of America and foreign countries
of patent protection for the discoveries, inventions, improvements, ideas
or innovations to be so assigned, including the executing of new,
provisional, continuing and reissue applications, to make all rightful
oaths, to testify in any proceeding before any governmental authority
authorized to grant or administer patent protection or before any court,
and generally to do everything lawfully possible to aid the Company, its
Affiliates and its and their successors, assigns and nominees to obtain,
enjoy and enforce proper patent protection for the discoveries, inventions,
improvements, ideas or innovations conceived or made by him during the
course of his services to the Company or any of its Affiliates for a period
of two (2) years after the termination of the Employment Term.
Section 2.6. Noncompetition. The Company and the Employee
acknowledge that the Company and its Affiliates conduct business throughout
the world and the engagement by the Employee in the Designated Industry (as
hereinafter defined) anywhere in the United States of America or Canada
could cause the Company irreparable harm. For the period commencing on the
date hereof and ending two (2) years after the termination of the
Employment Term (the "Restricted Period"), the Employee shall not (a)
except as an officer and director of the Company and its Affiliates, engage
at any place within the United States of America or Canada in any business
substantially similar to the business then being conducted by the Company
or its Affiliates (the "Designated Industry"), whether directly or
indirectly, for his own account or as an employee, partner, officer,
director, consultant or holder of more than five percent (5%) of the equity
interest in any other person, firm, partnership or corporation, (b) divert
to any competitor of the Company or its Affiliates any customer of the
Company or its Affiliates, or (c) solicit or encourage any officer, key
employee or consultant of the Company or its Affiliates to leave its or
their employ for alternative employment in the Designated Industry, or hire
or offer for employment to any person to whom the Company or any of its
Affiliates has offered employment within the three (3) years preceding the
termination of the Employment Term. The Employee will continue to be bound
by the terms of this Section 2.6 until their expiration and shall not be
entitled to any compensation with respect thereto.
Section 2.7. Severability. If any provision of this Agreement
shall, in whole or in part, prove to be invalid for any reason, such
invalidity shall affect only the portion of such provision which shall be
invalid, and in all other respects this Agreement shall stand as if such
invalid provision, or other invalid portion thereof, had not been a part
hereof. Without limiting the generality of the preceding sentence, if any
provision of Section 2.6 hereof shall be held to be invalid or
unenforceable under any applicable law, as unreasonably restrictive in
duration or geographical area or otherwise, it is the intention of the
parties hereto that such provision shall be deemed to be immediately
amended to provide for such maximum restriction as shall be determined to
be reasonable and enforceable by the court or other body having
6
<PAGE>
jurisdiction; and the Company and the Employee expressly agree that such
provision, as so amended, shall be valid and binding.
Section 2.8. Equitable Remedies. Each of the parties hereto
acknowledges and agrees that upon any breach by the Employee of his
obligations under Section 2.4, 2.5 or 2.6 hereof, the Company will have no
adequate remedy at law, and accordingly will be entitled to specific
performance and other appropriate injunctive and equitable relief.
Section 2.9. Assignment. The rights and obligations of the Company
under this Agreement shall inure to the benefit of and shall be binding
upon the successors and assigns of the Company, provided that neither this
Agreement nor the rights and obligations of the Company under this
Agreement may be assigned by the Company other than to an Affiliate of the
Company. The Employee may not assign to any other person his rights and/or
obligations under this Agreement.
Section 2.10. Amendment. This Agreement and any term, covenant,
condition or other provision hereof may be changed, waived, discharged or
terminated solely by an instrument in writing signed by the parties hereto.
Section 2.11. Waiver of Breach. The waiver by the Company of a
breach of any provision of this Agreement by the Employee shall not operate
or be construed as a waiver of any other breach by the Employee.
Section 2.12. Notices. All notices, requests, demands, consents and
other communications in connection with this Agreement shall be in writing
or by written telecommunication and shall be delivered personally or mailed
as follows: by registered or certified mail or by overnight courier,
postage prepaid, or sent by written telecommunication as follows:
(a) If to the Company:
SoftLock Services, Inc.
399 Alexander Street
Rochester, New York 14607
Tel: 716-546-1970
Fax: 716-546-2049
(b) If to the Employee:
Keith Loris
15 Oxbow Road
Concord, Massachusetts 01742
Tel: 978-371-7078
or at such other address as the parties hereto may from time to time
designate in writing.
Section 2.13. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of The Commonwealth of Massachusetts.
Section 2.14. Arbitration of Disputes. Any controversy or claim
arising out of or relating to this Agreement or the breach thereof shall be
7
<PAGE>
settled by arbitration in accordance with the laws of The State of New York
by there arbitrators, one of whom shall be appointed by the Company, one of
whom shall be appointed by the Employee and the third of which shall be
appointed by the first two arbitrators. If the first two arbitrators
cannot agree on the appointment of a third arbitrator, then the third
arbitrator shall be appointed by the American Arbitration Association.
Such arbitration shall be conducted in a mutually agreeable location in The
State of New York in accordance with the rules of the American Arbitration
Association, except with respect to the selection of arbitrators which
shall be as provided in this Section 2.14. Judgment upon the award
rendered by the arbitrators may be entered in any court having jurisdiction
thereof. All fees and expenses of the arbitration process shall be borne
equally by the parties hereto regardless of the final outcome, unless and
to the extent the arbitrators shall determine that under the circumstances
the sharing of all or a part of any such fees and expenses would be unjust.
Section 2.15. Entire Agreement. This Agreement embodies the entire
agreement between the Company and the Employee relating to the subject
matter hereof, and, except as otherwise expressly provided herein, this
Agreement shall not be affected by reference to any other document.
Section 2.16. Headings, Etc. The headings of the sections of this
Agreement have been inserted for convenience of reference only and shall
not be deemed to be a part of this Agreement.
Section 2.17. Counterparts. This Agreement may be executed in
several identical counterparts, each of which when executed by the parties
hereto and delivered shall be an original, but all of which together shall
constitute a single instrument. In making proof of this Agreement, it
shall not be necessary to produce or account for more than one such
counterpart.
Section 2.18. Additional Defined Terms.
(a) "Affiliate" means any person, corporation or other business
entity which directly or indirectly controls, or is controlled by, or
is under common control with another person, corporation or business
entity.
(b) "Subsidiary" means any corporation fifty percent (50%) or
more of the capital stock of which having ordinary voting power for
the election of directors is owned directly or indirectly by another
corporation or business entity.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
Accepted and Agreed to:
/s/ JONATHAN SCHULL /s/ KEITH LORIS
Jonathan Schull Keith Loris
SoftLock Services, Inc.
8
EXHIBIT 10.4
LEASE
-----
DATE OF LEASE EXECUTION: Date: March 4, 1999
ARTICLE I
REFERENCE DATA
--------------
1.1 SUBJECTS REFERRED TO: Each reference in this Lease to any of the
following terms shall incorporate the date stated for that subject in
this Section 1.1.
LANDLORD: Wellesley/Rosewood Maynard Mills Limited Partnership
----------------------------------------------------
MANAGING AGENT: Wellesley Management Corporation
--------------------------------
LANDLORD'S & MANAGING AGENT'S ADDRESS: 2 Clock Tower Place, Suite #200
-------------------------------
Maynard, Ma 01754
-----------------
LANDLORD'S REPRESENTATIVE: Robert W. Macnamara, Jr.
------------------------
TENANT: SoftLock Services, Inc.
TENANT'S ADDRESS (FOR NOTICE AND BILLING): Five Clock Tower Place, Suite 440
Maynard, MA 01754
TENANT'S REPRESENTATIVE: Keith Loris
BUILDING: Five Clock Tower Place
RENTABLE FLOOR AREA OF TENANT'S SPACE: 15,592 RENTABLE SQUARE FEET
TOTAL RENTABLE FLOOR AREA OF THE BUILDING: Approximately 366,112 RENTABLE
SQUARE FEET
TOTAL RENTABLE FLOOR AREA OF THE PROJECT: Approximately 1,084,484 RENTABLE
SQUARE FEET
TENANT'S DESIGN COMPLETION DATE: April 1, 1999
SCHEDULED TERM COMMENCEMENT DATE: June 1, 1999
TERM EXPIRATION DATE: May 31 , 2006 INITIAL TERM: Seven (7)Years
EXTENSION OPTION TERMINATION DATE: May 31, 2011
FIXED RENT: $ 16.25 PRSF / Yr.
FIXED RENT:$ 89,375.00/YEAR #1 MONTHLY FIXED RENT: $ 7,447.72(5,500 RSF)
------------ ----------------------
FIXED RENT:$ 170,625.00/YEAR #2 MONTHLY FIXED RENT: $ 14,218.75(10,500 RSF)
------------ -----------------------
FIXED RENT:$ 253,370.00/YEARS #3-7 MONTHLY FIXED RENT: $21,114.17(15,592 RSF)
------------ -----------------------
SECURITY DEPOSIT:$ 20,000.00
-----------
PERMITTED USES: General Office
PUBLIC LIABILITY INSURANCE: Naming Landlord, its agents and principals
as additionally Insured.:
$3,000,000 Bodily Injury
$3,000,000 Property Damage
1.2 EXHIBITS:
The exhibits listed below in this section are incorporated in this
Lease by reference and are to be
construed as part of this Lease:
Exhibit "A" - Plan showing Tenant's Space
Exhibit "B" - Landlord's Services
Exhibit "C" - Estoppel Certificate
Exhibit "D" - SNDA
Exhibit "E" - Rules and Regulations
Exhibit "F" - Cleaning Specifications
ARTICLE II
PREMISES AND TERM
-----------------
2.1 PREMISES
Subject to and with the benefit of the provisions of this Lease and
any ground lease or land disposition agreement relating to the parcel
on which the building (the"Building") is located ("the Lot"), Landlord
hereby leases to Tenant and Tenant leases from Landlord, approximately
15,592 Rentable Square Feet located on the fourth floor of the
1
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Building known as Five Clock Tower Place, Maynard, MA, as shown in
Exhibit A, excluding exterior faces of exterior walls, the common
facilities area and building service fixtures and equipment serving
exclusively or in common other parts of the Building. Tenant's Space,
with such exclusions, is hereinafter referred to as the "Premises".
Tenant shall have use of the entire Premises, however will pay rent of
5,500 RSF for the first twelve months of the term, pay rent on 10,500
RSF for the second twelve months of the initial term and upon
commencement of the twenty fifth month will pay rent on the entire
Premises. Landlord will build out the space per a mutually agreeable
time schedule once the final space plans and pricing are approved.
Tenant shall have, as appurtenant to the Premises, the right to use in
common with others entitled thereto, subject to reasonable rules of
general applicability to tenants of the Building from time to time
made by Landlord of which it is given notice: (a) the common
facilities included in the Building or on the Lot, including the
parking facility, if any, to the extent from time to time designated
by Landlord; and (b) the building service fixtures and equipment
serving the Premises; (c) parking spaces will be allocated per the
three year occupancy schedule and employee occupancy for a total
maximum of 75 spaces, unassigned.
Landlord reserves the right from time to time, without unreasonable
interference with Tenant's use (a) to install, repair, replace, use,
maintain and relocate for service to the Premises and to other parts
of the Building or either, building service fixtures and equipment
wherever located in the Building, and (b) to alter or relocate any
other common facility provided that substitutions are substantially
equivalent or better.
2.1.1 TEMPORARY SPACE
Upon Lease execution, Landlord will provide temporary office
space to Tenant in building Two on the second floor known as
Suite # 270. Provided that the Tenant's Design plan has been
delivered to Landlord for the leased Premises in building
Five, on or before April 1, 1999 there will be no cost to
Tenant for the Temporary space. Tenant will pay $1,000 per
week for each week that Tenant's Design plan is delayed
beyond April 15th. However, upon delivery of Tenant's Design
plan free rent for Temporary space shall again commence.
2.2 TERM
To have and to hold for a period (the "Term") commencing when the
Premises are deemed ready for occupancy as provided in Section 3.2 or,
if no work is to be performed by Landlord pursuant to Article III, on
the Scheduled Term Commencement Date (whichever of said dates is
appropriate being hereafter referred to as the "Commencement Date")
and continuing until the Term Expiration Date, unless sooner
terminated as provided in Section 6.1.6, 7.1 or 9.3 in Article VIII.
2.3 OPTION TO EXTEND
Tenant will have the right to extend the term of the Lease for 1 (one)
5 (five) year term provided that Tenant is not in default and has
given written notice to Landlord of such request at least 12 months
prior to the end of the initial term. The Fixed Rent for such
Extension Option shall be the greater of the then current Fixed Rent
or the fair market rent for said space. In the event that Landlord and
Tenant do not agree on the value of "fair market rent" both Landlord
and Tenant, at their own expense, will employ representative real
estate brokers, who actively broker commercial real estate within the
general market area of the Project. These brokers will agree on the
fair market rent amount. In the event that these two brokers do not
come to agreement both Tenant and Landlord will mutually agree on a
third representative real estate broker, cost of such broker will be
equally split between Tenant and Landlord. This third real estate
broker will establish a rate and the average of all three estimates of
market rates will become the rental rate for the extension option term
In no event shall the Fixed Rent be less than the rent paid in the
last twelve (12) months of the Initial Term.
ARTICLE III
CONSTRUCTION
------------
3.1 INITIAL CONSTRUCTION
Tenant shall, on or before Tenant's Design Completion Date, approve
Landlord's plans and pricing for Tenant's premises:
In the context of this Lease, Landlord's plans are design build and
engineering drawings for Tenant's work with detail acceptable to
Landlord for, mechanical, electrical and plumbing drawings furnished
by subcontractors to Landlord
2
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based on scope architectural drawings approved by Tenant consisting of
but not limited to furniture plans, reflective ceiling plans, and
electrical/telephone plans for the completion of Tenant's work. The
working drawings shall be prepared in compliance with all applicable
Legal requirements and, at Landlord's option, stamped registered
Massachusetts professionals; and shall consist of architectural and
engineering plans which are required to finish the Premises or to
obtain any Authorization required thereof.
Tenant's interior furnishings, i.e., specification, coordination,
supply and installation of furniture, furnishings, telephones and
movable equipment will be the responsibility of Tenant. All of
Tenant's construction, installation of furnishings, and later changes
or additions shall be coordinated with any work being performed by
Landlord in such a manner as to maintain harmonious labor relations
and not damage the Building or Lot or interfere with Building
operations. Except for installation of furnishings and the
installation of telephone outlets, which must be performed by a local
communications company at Tenant's direction and expense, all such
work shall be performed by Landlord's general contractor and Tenant
shall pay (X) any amount in excess of the fifteen dollar per square
foot ($15.00/RSF) Tenant Improvement Allowance (Y) an additional
amount equal to the cost of any changes from the specifications in
Exhibit A, including the cost to Landlord of the general contractor's
overhead and profit, which amount shall be due and payable within an
escrow account prior to the commencement of work schedule or within
ten (10) days of receipt of invoice. This excess amount, so deposited
in Landlord's escrow account, will be drawn after the initial Tenant
Improvement Allowance has been utilized. Landlord will not approve
any construction, alterations, or additions during the initial
construction period or the Term or any extension thereof, requiring
unusual expense to readapt the Premises to normal office use on lease
termination or increasing the cost of construction, insurance, taxes
and/or operating expenses on the Building or of Landlord's service
called for by Section 5.1, unless Tenant first gives assurances
acceptable to Landlord that such readaptation will be made prior to
such termination without expense to Landlord and makes provisions
acceptable to Landlord for payment of such increased cost. Landlord
will also disapprove any alterations or additions requested by Tenant
which will delay completion of the Premises or the Building. All
changes, additions, and alterations made to the Premises during the
Term or any extension thereof shall be part of the Building, except
such items as by writing at the time of approval the parties agree
either shall be removed by Tenant, at its cost, on termination of this
Lease, or shall be removed or left at Landlord's election.
In the event that the cost of the work performed by Landlord's general
contractor is less than the Tenant Improvement Allowance of $15.00 per
square foot, Tenant shall receive an immediate credit from the rent
due commensurate with the amount of the savings below said $15.00
allowance. Said Tenant Improvement Allowance shall be amortized over
five years at a rate of 8.5%.
3.2 PREPARATION OF PREMISES FOR OCCUPANCY
If Landlord is obligated to perform construction work pursuant to
Exhibit A, Landlord agrees to use reasonable efforts to have the
Premises ready for occupancy on or before the Scheduled Term
Commencement, at which shall, however, be extended for a period equal
to that of any delays due to Tenant's approval of plans after April 1,
1999, Tenant's changes after approval of said plans, governmental
regulations, unusual scarcity of, or inability to obtain labor or
materials, labor difficulties, casualty or other causes reasonably
beyond Landlord's, or its agents, control. The Premises shall be
deemed ready for occupancy on the earlier of:
a. the date on which Tenant occupies all or any part of the
Premises; or
b. the date on which the Tenant's improvements, as specified in
Exhibit A, are substantially completed as certified by the
issuance of a Temporary Certificate of Occupancy (TCO) or
Certificate of Occupancy (CO); provided, however, that if
Landlord is unable to complete construction due to delay in
Tenant's compliance with the provisions of Section 3.1 of
this Lease, then the Premises shall be deemed ready for
occupancy no later than the Scheduled Term Commencement
Date. In the event that Tenant Space is not ready for
occupancy, under the aforementioned, Landlord will offset
rent on a day for day basis.
Landlord shall permit Tenant access for installing equipment and
furnishings in the Premises 14 days prior to the Term provided it can
be done without material interference with remaining work.
In the event of Tenant's failure to comply with the provision of
Section 3.1 of this Lease to submit information and specifications
which meet Landlord's approval, Landlord may, at Landlord's option,
exercisable by notice to Tenant, consider this to be a Tenant Delay.
In such case the Term Commencement Date will remain per Section 1.1,
however Tenant's Occupancy date will be adjusted to an Outside
Delivery Date equal to the Tenant Delay.
3
<PAGE>
3.3 GENERAL PROVISIONS APPLICABLE TO CONSTRUCTION
All construction work required or permitted by this Lease, whether by
Landlord or by Tenant, shall be done in a good and workmanlike manner
and in compliance with all applicable laws and all lawful ordinances,
regulations and orders of governmental authority and insurers of the
Building. Either party may inspect the work of the other at
reasonable times and shall promptly give notice of observed defects.
Landlord's obligations under Section 3.1 shall be deemed to have been
performed upon substantial completion of Tenant Work, exclusive of
"punchlist items", when Tenant commences to occupy any portion of the
Premises for the Permitted Uses except for items which are incomplete
or do not conform with the requirements of Section 3.2 and as to which
Tenant shall, in either case, have given written notice to Landlord
prior to commencement. If Tenant shall not have commenced to occupy
the Premises for the Permitted Uses within thirty (30) days after they
are deemed ready for occupancy as provided in Section 3.2, a
certificate of completion by a licensed architect or registered
engineer shall be conclusive evidence that Landlord has performed all
such obligations except for items stated in such certificate to be
incomplete or not in conformity with such requirements. Landlord's
General Contractor will warranty all work performed at their direction
for a period of one year from delivery.
Within five days of Tenant's occupancy both Landlord and Tenant will
mutually agree on punchlists items to be completed. Upon delivery of
this "punch list" Landlord will have thirty (30) days to complete, and
or reasonably have certain items under prosecution. In the event that
Landlord does not complete such "punchlist items" Tenant will have the
right to hire our own contractor at Landlord's expense to complete
such work.
3.4 REPRESENTATIVES
Each party authorizes the other to rely in connection with their
respective rights and obligations under this Article III upon approval
and other actions on the party's behalf by Landlord's Representative
in the case of Landlord or Tenant's Representative in the case of
Tenant or by any person designated in substitution or addition by
written notice to the party relying.
ARTICLE IV
RENT
----
4.1 RENT
Tenant agrees to pay, without any offset or reduction whatsoever Fixed
Rent equal to 1/12th of the Fixed Rent in equal installments in
advance on the first day of each calendar month included in the Term;
and for any portion of a calendar month at the beginning or end of the
Term, at the rate payable for such portion in advance.
4.2 TAXES AND OPERATING EXPENSES ESCALATION
4.2.1 Operating Expenses and Taxes
----------------------------
Operating Expnses shall be defined as all reasonable
expenses, costs, and dispursements of every kind and nature
which Landlord shall pay or become obligated to pay in
connection with the operation amd mainternance of the
Project and the Land and the provison of Landlord services,
exclusive of (i) costs of redecorating, repair and other
services which are not provided on a regular basis to
tenants of the Complex or for which Landlord is entitled to
be paid by specific tenants and others, (ii) wages, salaries
and fees to personell of the Landlord above the level of
Project Director, (iii) replacement or contingiency
reserves, (iv) casualty and losses, (v) eminent domain
takings, (vi) ground lease (other than for parking or
services provided to all tenants), (vii) charges for
depreciation and amortization, (viii) principal and interest
on indebtedness and obligations with respect to equity
interests, (ix) income, excess profit, franchise and similar
taxes, (x) real estate taxes and assesments, (xi) leasing
commissions, (xii) promotional advertising and other public
relations expenses related to leasing, (xiii) legal and
other professional fees relating to leasing, financing and
other services realting to the development of the project,
and (xiv) judgements, amounts paid in settlement and other
legal or extraordinary costs of Landlord (including, without
limitation, under environmental laws), (xv) captial items
not resoanbly allowable per Generally Accepted Accounting
Principles (GAAP).
Taxes shall be defined as all real estate taxes and
assesment imposed on the Complex, the Building or the Land.
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If with respect to: (a) any Calendar Year, the Operating
Expenses exceed the Operating Expense Base or (b) any
Calendar Year, Taxes exceed the Tax Base (whether as the
result of an increase in rate or assessment or both), Tenant
shall pay to Landlord, Tenant's Share, based upon Rentable
Square Feet in the Premises expressed as a percentage of the
Rentable Square Feet in the Complex (and which will
therefore will not vary with changing occupancy levels), of
the amount of each such excess (the "Tenant's Tax and
Expense Overage") as set forth in the Tax and Operating
Expense Statement (as defined below).
Notwithstanding anything to the contrary set forth herein,
the first payment by Tenant with respect to Taxes and
Operating Expenses shall be made in connection with the Tax
and Operating Expense Statement due as of January 31, 2000,
and shall be based upon the increase in Taxes and Operating
Expenses over Calendar Year 1999. In no event shall Tenant
be obligated to make any payments with respect to Operating
Expenses or Taxes until the expiration of the first twelve
(12) full calendar months of the Intitial Term.
4.2.2 Annual Statement of Additional Rent Due for Expenses and Taxes
--------------------------------------------------------------
By January 31 next succeding the end of each Calendar Year,
Landlord shall render to Tenant a statement, showing (i)(a)
actual Taxes for the prior Calendar Year so indicated and
(b) actual Operating Expenses for the prior Calendar Year so
indicated, if available, and (ii)(a) an Estimate for
Operating Expenses for the then current Calendar Year, (b)
an estimate for Taxes for the then current Calendar Year,
and (c) an estimate of Tenant's Tax and Operating Expense
Overage for the then current Calendar Year (the "Tax and
Operating Expense Statement"). In the event that such
actual Taxes and Operating Expenses for the prior Calendar
Year are not available by January 31, Landlord shall have
until March 31 of such current Calendar Year to provide such
actual Taxes and Operating Expense Statement, but in any
event shall provide an estimate of such Taxes and Operating
Expenses for said applicable Calendar Year by January 31 of
the then current Calendar Year along with (a) an estimate
for Operating Expenses for the then current Calendar Year,
(b) an estimate for Taxes for the then current Calendar Year
and (c) an estimate of Tenant's Tax and Expense Overage for
the then current Calendar Year. Notwithstanding that such
Taxes and Operating Expense provided by January 31 for the
applicable Calendar Year are actual or estimated, the
Landlord shall set Additional Rent for the then current
Calendar Year no later than January 31 of the then current
Calendar Year, which Additional Rent shall be apportioned
over a twelve month period and payable in monthly
installments of Additional Rent commencing with the next
installment of Fixed Rent, except that the payments for
estimated Operating Expense and Taxes applicable to January,
February and March of the then current Calendar Year shall
be due and payable on March 1st of the then current Calendar
Year. Landlord's estimates shall be supported by documented
evidence of any increases.
Landlord shall provide Tenant with an itemized budget for
Operating Expenses (the "Budget") for the then current
Calendar Year on or before January 31 of the then current
Calendar Year, and the reconciliation between the estimated
and actual calculation of Operating Expenses and Taxes (the
"Landlord's Reconciliation") no later than March 31 of the
then current Calendar Year. Tenant shall have ninety (90)
days after receipt of Landlord's Reconciliation to respond
in writing of any dispute to the same.
Landlord shall cause to be kept books and records showing
Landlord's Operating Expenses in accordance with generally
accepted accounting principles consistently applied. The
amount of any refund of Taxes shall be credited against
Taxes for the Calendar Year in which such refund is
received; provided, however, in the event that Landlord
receives a refund on account of Taxes after the expiration
of the Term, which refund relates to a Calendar Year during
the term, the amount of such refund fairly allocable to
Tenant shall promptly be refunded to Tenant by Landlord.
All references to Taxes for a particular calendar year shall
be deemed to refer to Taxes due and payable during such
calendar year without regard to when wuch impositions are
assessed or levied.
All records that the Landlord is required to maintain
hereunder or in compliance with applicable law shall be
maintained by the Landlord for a period of two (2) years
following the expiration of the calendar year to which such
records relate. The records maintained by Landlord shall
include evidence for all charges payable with respect to
Taxes and Operating Expenses. Such records shall be
maintained at the Project, or such other place within The
Commonwealth of Massachusetts as Landlord shall designate
from time to time for the keeping of such records.
Tenant shall have the right, through its representatives, to
examine, copy and audit all records of the Project
maintained by Landlord which relate to the Tax and Expense
Statement or the Landlord's Reconciliation at
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reasonable times, but no more than once per Calendar Year,
upon not less than thirty (30) days prior written notice,
unless such examination or audit is being conducted in
connection with a Tax and Operating Expense Statement or
Landlord's Reconciliation, in which case Tenant shall,
notwithstanding anything to the contrary contained herein,
provide no less than five (5) days notice to Landlord prior
to the expiration of ninety (90) days after receipt of
Landlord's Reconciliation. In the event that Tenant
requests such review of said records, Tenant shall have one
hundred-fifty (150) days after receipt of Landlord's
Reconciliation (but not after August 31) to conduct an audit
and provide the Landlord with results of such audit. The
cost of such audits shall be borne by Tenant. If, as a
result of such audit, it is determined that Tenant has
overpaid Landlord on account of Operating Expenses, then the
undercharged or overpaid party shall reimburse the other
party for the payment due in a lump sum payment within
thirty (30) days of the determination of the acutal charges.
Notwithstanding anything contained to the contrary in this
Lease, the initial responsibility for the payment of all
Taxes with respect to the Building and the Project shall be
upon the Landlord and the Landlord agrees to pay the same as
requested by law, but in any event so as to assure the
Tenant's right to occupy the Premises and to use the Common
Areas of the Project shall not be disturbed or threatened.
Landlord shall provide Tenant with copies of all tax bills
and a computation of Tenant's pro rata share thereof; in the
event that any special assessments and payable, Tenant's pro
rata share of the same shall be calculated as if such
assessments were being paid by Landlord over the longest
period of time permitted by applicable law.
Further, notwithstanding anything to the contrary contained
herein; (i) Tax Base shall be the Taxes for the 1999
calendar year, and (ii) the Operating Expense Base shall be
the Operating Expenses for the 1999 calendar year
4.2.3 Monthly Payments of Expenses and Taxes as Additional Rent
---------------------------------------------------------
Subject to Section 4.2.1, Tenant shall pay to Landlord in
advance for each calendar month as Additional Rent an amount
equal to 1/12th of Tenant's estimated obligation. The
amount due shall be paid with Tenant's monthly payments of
Rent and shall be credited by Landlord to Tenant's
obligations. If the total amount paid hereunder exceeds the
actual amount due, such excess shall be credited by Landlord
against the monthly installments of Additional Rent next
falling due or shall be refunded to Tenant within thirty
(30) days of the expiration or termination of this Lease
(unless such expiration or termination is the result of an
Event of Default, then such excess may be applied by
Landlord to offset any other costs, fees or expenses due
from Tenant to Landlord hereunder).
4.2.4 Accounting Periods
------------------
In all Tax and Expense Statements rendered, amounts for
periods partially within and partially without the
accounting periods shall be appropriately apportioned, and
any items which are not determinable at the time of a
statement shall be included therein on the basis of
Landlord's estimate and with respect thereof Landlord shall
render promptly after determination a supplemental statement
and appropriate adjustment shall be made according thereto.
4.2.5 Abatement of Taxes
------------------
Landlord may at any time and from time to time make
application to the appropriate Governmental Authority for an
abatement of Taxes so long as, at Landlord's sole
discretion, such application is not in violation of any of
Landlord's TIFF covenants, or any other of Landlord's
contracts made with any municipal, state or federal
governmental entities.
4.3 INTENTIONALLY OMITTED
4.4 ELECTRIC SERVICE; PAYMENT AS ADDITIONAL RENT
The Landlord shall provide 480/277, 120/208 volt, electrical services
to the Premises, and shall make available for Tenant's electrical use,
six (6) watts per RSF above the Building Base Electric Use (as defined
below). The Landlord shall make reasonable efforts to price
electrical service for the Project.
The "BUILDING BASE ELECTRIC USE" is that amount of wattage delivered
to the Building from the switch gear available to power any and all
Common Areas and appurtenances thereto.
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The Landlord shall check meter electricity to the Premises, and shall
bill Tenant directly for such electrical energy with no markup for
Landlord's profit on the Tenant's electrical energy use (the "Electric
Bill"). Landlord shall provide Tenant with said Electric Bill monthly
upon its receipt of the same, which amount shall be due from Tenant as
Additional Rent upon the later to occur of (a) twenty (20) days after
the receipt fo the Electric Bill, or (b) with the next installment of
Basic Rent, as set forth below.
4.5 PAYMENTS
All payments of Fixed or Additional Rent shall be made to the Landlord
or to such other person as Landlord may from time to time designate.
If any installment of Rent, Fixed or Additional, or on account of
leasehold improvements is paid more than five (5) days after the due
date thereof, at Landlord's election, it shall bear interest at the
base rate announced from time to time by Fleet National Bank (or its
successors) plus 400 basis points per annum on a perdiem basis from
such due date, which interest shall be immediately due and payable as
further additional rent.
ARTICLE V
LANDLORD'S COVENANTS
--------------------
5.1 LANDLORD'S COVENANTS DURING THE TERM
Landlord covenants during the Term:
5.1.1 Building Services - To furnish, through Landlord's employees
or independent contractors, the services listed in Exhibit
B;
5.1.2 Additional Building Services - To furnish, through
Landlord's employees or independent contractors, reasonable
additional Building operation services upon reasonable
advance request of Tenant at equitable rates from time to
time established by Landlord to be paid by Tenant with the
next monthly rent installment after receipt of bill by
Landlord for said requested services;
5.1.3 Repairs - Except as otherwise provided in Article VII, to
make such repairs to the roof, exterior walls, exterior
windows, exterior doors, floor slabs, load bearing columns,
foundation, common facilities (including HVAC systems,
plumbing and electrical systems) for the Building and common
areas of the Lot as may be necessary to keep them in good
and serviceable condition;
5.1.4 Quiet Enjoyment - That Landlord has the right to make this
Lease and that Tenant, on paying the rent and performing its
obligations hereunder, shall peacefully and quietly have,
hold and enjoy the Premises throughout the Term without any
manner of hindrance or molestation from Landlord or anyone
claiming under Landlord, subject, however, to all the terms
and provisions hereof;
5.1.5 To keep the Premises equipped in accordance with
Massachusetts Law with all fire and safety equipment
mandated as the responsibility of Landlords; and ADA
compliance
5.1.6 Landlord's Workmen's Compensation Insurance - To keep all
Landlord's employees working in the Premises covered by
workmen's compensation insurance in statutory amounts.
5.2 INTERRUPTIONS
Landlord shall not be liable to Tenant for any compensation or
reduction of rent by reason of inconvenience or annoyance or for loss
of business arising from power losses or shortages or from the
necessity of Landlord's entering the Premises for any of the purposes
in this Lease authorized, or for repairing the Premises or any portion
of the Building or improvements or the Lot. In case Landlord is
prevented or delayed from making the repairs, alterations or
improvements, or furnishing any service or performing any other
covenant or duty to be performed on Landlord's part, by reason of any
cause reasonably beyond Landlord's control, Landlord shall not be
liable to Tenant therefore, nor, except as expressly otherwise
provided in Article VII, shall Tenant be entitled to any abatement or
reduction of rent by reason thereof, or shall the same give rise to
a claim in Tenant's favor that such failure constitutes, actual or
constructive, total or partial, eviction from the Premises.
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Landlord reserves the right to stop any service or utility system when
necessary by reason of accident or emergency or until necessary
repairs have been completed. Except in case of emergency repairs,
Landlord will give Tenant reasonable advance notice of any
contemplated stoppage and will use reasonable efforts to avoid
unnecessary inconvenience to Tenant by reason thereof.
Notwithstanding anything herein contained to the contrary, this
paragraph shall not apply to power outages caused by Landlords failure
or neglect to pay utility fees or the Landlord's failure to properly
maintain the on site distribution systems.
ARTICLE VI
TENANT'S COVENANTS
------------------
6.1 TENANT'S COVENANTS DURING THE TERM
Tenant covenants during the Term and such further time as Tenant
occupies any part of the Premises:
6.1.1 Tenant's Payments - to pay when due (a) all Fixed Rent and
Additional Rent, (b) all Taxes which may be imposed on
Tenant's personal property in the Premises (including,
without limitation, Tenant's fixtures and equipment)
regardless to whomever assessed, (c) all charges by public
utilities for telephone and other utility services
(including service inspections thereof) rendered to the
Premises not otherwise required hereunder to be furnished by
Landlord without charge and not consumed in connection with
any services required to be furnished by Landlord without
charge, and (d) as Additional Rent, all charges of Landlord
for services rendered pursuant to section 5.1.2 hereof;
6.1.2 Repairs and Yielding Up - Except as otherwise provided in
Article VII and Section 5.1.3, to keep the Premises in good
order, repair and condition, reasonable wear and damage from
casualty only excepted, and at the expiration or termination
of this Lease peaceably to yield up the Premises and all
changes and additions therein in such order, repair and
condition, first removing all goods and effects of Tenant
and any items, the removal of which is required by agreement
or specified therein to be removed at Landlord's election,
at Tenant's sole cost and expense, and which Landlord
requires to be removed, and repairing all damage caused by
such removal and restoring the Premises and leaving them
clean and neat, at Tenant's sole cost and expense; any
property not so removed shall be deemed abandoned and may be
removed and disposed of by Landlord, in such manner as
Landlord shall determine, and Tenant shall pay Landlord the
entire cost and expense incurred by it by effecting such
removal and disposition and in making any incidental repairs
and replacements to the Premises for use and occupancy
during the period after the expiration of the Term; it
being agreed that the acceptance of reasonable use and wear
shall not apply so as to permit Tenant to keep the Premises
and the use reasonably made thereof, or in less than good
and tenant-like repair;
6.1.3 Occupancy and Use - Continuously from the Commencement Date,
to use and occupy the Premises only for the Permitted Uses;
and not to injure or deface the Premises, Building or Lot;
and not to permit in the Premises any auction sale,
nuisance, or the emission from the Premises of any
objectionable noise or odor; nor any use thereof which is
improper, offensive, contrary to law or ordinance, or liable
to invalidate or increase the premiums for any insurance on
the Building or its contents or liable to render necessary
any alteration or addition to the Building;
6.1.4 Rules and Regulations - To comply with all Rules and
Regulations reasonably adopted by Landlord now or hereafter
, of which Tenant has been given notice and received copies,
for the care and use of the Building and Lot and their
facilities and approaches, it being understood that Landlord
shall not be liable to Tenant for the failure of other
tenants of the Building to conform to such Rules and
Regulations;
6.1.5 Safety Appliances - To keep the Premises equipped with all
safety appliances required by law or ordinance or any other
regulation of any public authority, because of permits so
required because of such use and, if requested by Landlord,
to do any work so required because of such use, it being
understood that the foregoing provisions shall not be
construed to broaden in any way Tenant's Permitted Uses;
6.1.6 Assignment and Subletting - Not without prior written
consent of Landlord, which consent shall not be unreasonably
withheld, to assign this Lease, to make any sublease, or to
permit occupancy of the Premises or any part thereof by
anyone other than Tenant, voluntarily or by operation of
law, it being understood that (i) in no event shall Landlord
consent to any such assignment, sublease or occupancy if the
same is on terms
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more favorable to the successor occupant than to the then
occupant or to the current rates being marketed, to a
perspective Subleases, by Landlord for similar space , and
(ii) if Tenant is a corporation, any transfer of fifty
percent (50%) or more of the voting stock of Tenant or its
merger with another corporation, trust, partnership, or
entity without Landlord's prior written notice shall not be
deemed an event of default, provided that the surviving
entity is of equal or greater net worth as Tenant hereunder;
as Additional Rent, to reimburse Landlord promptly for
reasonable legal and other expenses incurred by Landlord in
connection with any request by Tenant for consent to
assignment or subletting; no assignment or subletting shall
affect the continuing primary liability of Tenant (which,
following assignment, shall be joint and several with the
assignee); no consent to any of the foregoing in a specific
instance shall operate as waiver in any subsequent instance.
If Tenant requests Landlord's consent to assign this Lease
or sublet more than seventy percent (70%) of the Premises,
Landlord shall have the option, exercisable by written
notice to Tenant given within ten (10) days after receipt of
such request, to terminate this Lease as of a date specified
in such notice which shall be not less than thirty (30), or
more than sixty (60), days after the date of such notice;
and any rental received by Tenant from a sub-tenant must be
remitted to Landlord;
If Landlord approves a sublease and said sublease is for a
total rental amount which on an annualized basis is greater
than the Fixed Rent and Additional Rent due from Tenant to
Landlord under this Lease, Tenant shall pay to Landlord,
forthwith upon Tenant's receipt of each installment of such
excess Fixed Rent and Additional Rent, during the term of
any approved sublease, as Additional Rent hereunder, in
addition to the Fixed Rent and Additional Rent and other
payments due under this Lease, an amount equal to One
Hundred percent (100%) of the positive excess between all
Fixed Rent and Additional Rent received by Tenant under the
sublease and the aggregate of the Fixed Rent and Additional
Rent due hereunder.
6.1.7 To defend, with counsel reasonably acceptable to Landlord,
save harmless, and indemnify Landlord from any liability for
injury, loss, accident or damage to any person or property
and from any claims, actions, proceedings and expenses and
costs in connection therewith (including, without implied
limitation, reasonable counsel fees): (i) arising from the
omission, fault, willful act, negligence or other misconduct
of Tenant or from any use made or thing done or occurring on
the Premises not due to the omission, fault, willful act,
negligence or other misconduct of Landlord, its agents or
employees, or (ii) resulting from the failure of Tenant to
perform and discharge its covenants and obligations under
this Lease;
6.1.8 Tenant's Liability Insurance - To maintain public liability
insurance in the Premises in amounts which shall, at the
beginning of the Term, be at least equal to the limits set
forth in Section 1.1 and, from time to time during the Term,
shall be for such higher limits, if any, as are customarily
carried in the area in which the Premises are located on
property similar to the Premises and used for similar
purposes and to furnish Landlord with the certificates
thereof naming Landlord as named insured provided further
that such insurance shall provide that it may not be
cancelled or terminated without thirty (30) days prior
written notice to Landlord;
6.1.9 Tenant's Workmen's Compensation Insurance - To keep all
Tenant's employees working in the Premises covered by
workmen's compensation insurance in statutory amounts and to
furnish Landlord with certificates thereof provided further
that such insurance shall provided that it may not be
cancelled or terminated without thirty (30) days prior
written notice to Landlord;
6.1.10 Landlord's Right of Entry - To permit Landlord and
Landlord's agents entry to examine the Premises at
reasonable times (provided that Landlord shall use
reasonable efforts to minimize any interference with
Tenant's business caused by any entry pursuant to this
Section) and, if Landlord shall so elect, to make repairs or
replacements; to remove, at Tenant's expense, any changes,
additions, signs, curtains, blinds, shades, awnings,
aerials, flagpoles, or the like not consented to in writing;
and to show the Premises to prospective tenants during the
twelve (12) months preceding expiration of the Term and to
prospective purchasers and mortgagees at all reasonable
times. In the event of an emergency, which shall be the sole
judgement of the Landlord, Landlord shall not be required to
give said aforementioned notice;
6.1.11 Loading - Not to place a load upon the Premises exceeding an
average rate of fifty (50) pounds of live load per square
foot of floor area; Tenant's business machines and
mechanical equipment which cause vibration or noise that may
be transmitted to the Building structure or to another
leased space in the Building shall be placed and maintained
by Tenant in settings of cork, rubber, spring, or other
types of vibration or noise eliminators sufficient to
eliminate such vibration or noise;
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6.1.12 Landlord's Costs - In case Landlord shall be made party to
any litigation commenced against Tenant or against any
parties in possession of the Premises or any part thereof
claiming under Tenant, to pay, as Additional Rent, all costs
including, without implied limitation, reasonable counsel
fees incurred by Landlord in connection with the successful
enforcement by Landlord of any obligations of Tenant under
this Lease;
6.1.13 Tenant's Property - All furnishings, fixtures, equipment,
effects and property of every kind, nature and description
of Tenant and of all persons claiming by, through or under
Tenant which, during the continuance of this Lease or any
occupancy of the Premises by Tenant or anyone claiming under
Tenant, may be on the Premises or elsewhere in the Building
or on the Lot shall be at the sole risk and hazard of
Tenant, and if the whole or any part thereof shall be
destroyed or damaged by fire, water or otherwise, or by the
leakage or bursting of water pipes, steam pipes, or other
pipes, by theft, or from any other cause not resulting from
the intentional or grossly negligent act or omission of
Landlord, its servants, agents and employees, no part of
said loss or damage is to be charged to or to be borne by
Landlord;
6.1.14 Labor or Materialmen's Liens - To pay promptly when due the
entire cost of any work done on the Premises by Tenant, its
agents, employees, or independent contractors; not to cause
or permit any liens for labor or materials performed or
furnished in connection therewith to attach to the Premises;
and immediately to discharge any such liens which may so
attach;
6.1.15 Changes or Additions - Not to make any changes or additions
to the Premises without Landlord's prior written consent,
provided that Landlord's consent to non-structural changes
or additions (specifically excluding signs or other changes
visible from the exterior of the Premises) shall not be
unreasonably withheld or delayed; Tenant agrees to use the
services of Landlord's General Contractor for any such
Changes or Additions.
6.1.16 Holdover - To pay to Landlord twice the total of the Fixed
Rent and Additional Rent then applicable for each month or
portion thereof should Tenant retain possession of the
Premises or any part thereof after the termination of this
Lease without the express written consent of the Landlord,
whether by lapse of time or otherwise, and also to pay all
damages sustained by Landlord on account thereof; the
provisions of this subsection shall not operate as a waiver
by Landlord of any right of re-entry provided in this Lease.
ARTICLE VII
CASUALTY AND TAKING
-------------------
7.1 CASUALTY AND TAKING
In case during the Term all or any substantial part of the Premises,
the Building, the Project, or Lot or any one or more of them, are
damaged materially by fire or any other cause or by action of public
or other authority in consequence thereof or are taken by eminent
domain or Landlord receives compensable damage by reason of anything
lawfully done in pursuance of public or other authority, this Lease
shall terminate at Landlord's election, which may be made,
notwithstanding that Landlord's entire interest may have been
divested, by notice given to Tenant within thirty (30) days after the
occurrence of the event giving rise to the election, to terminate,
which notice shall specify the effective date of termination which
shall not be less than fifteen (15), nor more than thirty (30), days
after the date of notice of such termination. If in any such case the
Premises are rendered unfit for use and occupancy and the Lease is not
so terminated, Landlord shall use due diligence to put the Premises,
or, in case of taking, what may remain thereof (excluding any items
installed or paid for by Tenant which Tenant may be required or
permitted to remove) into proper condition for use and occupation to
the extent permitted by the net award of insurance or damages, and
just proportion of the Fixed Rent and Additional Rent according to the
nature and extent of the injury shall be abated until the Premises or
such remainder shall have been put by Landlord in such condition; and
in case of a taking which permanently reduces the area of the
Premises, a just proportion of the Fixed Rent and additional rent
shall be abated for the remainder of the Term. In the event that
Landlord estimates that it will take more than six (6) months to
restore the premises to proper condition, Tenant may terminate this
Lease by notice to Landlord given within fifteen (15) days of the date
of Landlord's notice to Tenant. Landlord will notify Tenant within
thirty (30) days of Casualty or Taking of its estimate of damage and
whether it intends to restore.
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7.2 RESERVATION OF AWARD
Landlord reserves to itself any and all rights to receive awards made
for damages to the Premises, Building, Project or Lot and the
leasehold hereby created, or any one or more of them, accruing by
reason of exercise of eminent domain or by reason of anything lawfully
done in pursuance of public or other authority. Tenant hereby
releases and assigns to Landlord all Tenant's right to such awards,
and covenants to deliver such further assignments and assurances
thereof as Landlord may from time to time request. It is agreed and
understood, however, and Tenant does not assign to Landlord, any
damages payable for (i) moveable trade fixtures installed by Tenant or
anybody claiming under Tenant, at its own expense, or (ii) relocation
expenses recoverable by Tenant from such authority in a separate
action.
ARTICLE VIII
DEFAULT
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8.1 EVENTS OF DEFAULT
If any default by Tenant (of which Landlord is not required to give
written notice more than one (1) time per calendar year) continues for
more than five (5) days after notice, in case of Fixed Rent or
Additional Rent, or in any other case for more than thirty (30) days
and such additional time, if any, as is reasonable necessary to cure
the default if the default is of such a nature that it cannot
reasonable by cured in thirty (30) days; or if Tenant makes any
assignment for the benefit of creditors, or files a petition under any
bankruptcy or insolvency law; or if such a petition is filed against
Tenant and is not dismissed within thirty (30) days; or if a receiver
or similar officer becomes entitled to Tenant's leasehold hereunder,
and it is not returned to Tenant within ninety (90) days, or if such
leasehold is taken on execution or other process of law in any action
against Tenant then, and in any such cases, Landlord and the agents
and servants of Landlord may, in addition to and not in derogation of
any remedies for any preceding breach of covenant, immediately or at
any time thereafter while such default continues and without further
notice and in compliance with applicable law enter into and upon the
Premises or any part thereof in the name of the whole or mail a notice
of termination addressed to Tenant at the Premises and repossess the
same as of Landlord's former estate and expel Tenant and those
claiming through or under Tenant and remove its and their effects
without being deemed guilty of any manner of trespass and without
prejudice to any remedies which might otherwise be used for arrears of
rent or prior breach of covenant, and upon such entry or mailing as
aforesaid, this Lease shall terminate, but Tenant shall remain liable
as hereinafter provided. Landlord may, in the event Tenant fails or
refuses to vacate the Premises, remove and store Tenant's effects and
those of any person claiming through or under Tenant at the expense of
Tenant.
8.2 TENANT'S OBLIGATION AFTER TERMINATION
In the event that this Lease is terminated under any of the provisions
contained in Section 8.1 or shall be otherwise terminated for breach
of any obligation of Tenant, Tenant covenants to pay forthwith to
Landlord, as compensation, if Landlord so elects, the excess of the
total Rent reserved for the residue of the Term over the rental value
of the Premises for said residue of the Term, discounted to its
present value. In calculating the rent reserved, there shall be
included, in addition to the Fixed Rent and all Additional Rent, the
value of all other consideration agreed to be paid or performed by
Tenant for said residue. Tenant further covenants, as alternative to
the payment described in the preceding sentence, a cumulative
obligation after any such ending to pay punctually to Landlord all the
sums and perform all the obligations which Tenant covenants in this
Lease to pay and to perform in the same manner and to the same extent
and at the same time as if this Lease had not been terminated. In
calculating the amounts to be paid by Tenant under the next foregoing
covenant, Tenant shall be credited with any amount paid to Landlord as
compensation as provided in the first sentence of this Section 8.2 and
also with the net proceeds of any rents obtained by Landlord by re-
letting the Premises, after deducting all Landlord's reasonable
expenses in connection with such re-letting, including, without
implied limitation, all repossession costs, brokerage commissions,
fees for legal services and expense of preparing the Premises for such
re-letting, it being agreed by Tenant that Landlord may (i) re-let the
Premises or any part thereof for a term or terms which may, at
Landlord's option, be equal to or less than or exceed the period which
would otherwise have constituted the balance of the Term and may grant
such concessions and free rent as Landlord in its sole judgement
considers advisable or necessary to re-let the same, and (ii) make
such alterations, repairs and decorations in the Premises as Landlord
in its sole judgement considers advisable or necessary to re-let the
same, and no action of Landlord in accordance with the foregoing or
failure to re-let or to collect rent under re-letting shall operate or
be construed to release or reduce Tenant's liability as aforesaid.
Nothing contained in this Lease shall, however, limit or prejudice the
right of Landlord to prove and obtain in proceedings for bankruptcy or
insolvency by reason of the termination of this Lease, an amount equal
to the maximum allowed by any statute or rule of law in effect at the
time when, and governing the proceedings in which, the damages
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are to be proved, whether or not the amount be greater, equal to, or
less than the amount of the loss or damages referred to above.
ARTICLE IX
MISCELLANEOUS
-------------
9.1 TITLES
The titles of the Articles are for convenience and are not to be
considered in construing this Lease.
9.2 NOTICE OF LEASE
Upon request of either party, both parties shall execute and deliver,
after the term begins, a short form of this Lease in a form
appropriate for recording or registration, and if this Lease is
terminated before the term expires, an instrument in such form
acknowledging the date of termination.
9.3 RELOCATION
Landlord reserves the right to relocate the Premises to comparable
space with comparable access within the Building or another building
in the office park in which the Building is located by giving Tenant
one hundred twenty (120) days written notice of such intention to
relocate at any time after the first anniversary of the Commencement
Date. If, within thirty (30) days after receipt of such notice,
Landlord and Tenant have not agreed on the space to which the Premises
are to be relocated and the timing of such relocation, this Lease
shall terminate on that date which is ninety (90) days after Tenant's
receipt of such notice. If Landlord and Tenant do so agree, then
effective on the date of such relocation, this Lease shall be amended
by deleting the description of the original Premises and substituting
therefore a description of such comparable space. Landlord agrees to
pay the reasonable costs of moving Tenant to such other space within
the Building or the Complex, including the expense of comparable
leasehold improvements. Such reasonable costs to include all
additional costs caused by the move including but not limited to
charges associated with changes to Tenant's telecommunications or
internet carriers and changes to sales or ancillary materials
containing tenant's address or directions to Tenant's offices.
9.4 NOTICES FROM ONE PARTY TO THE OTHER
No notice, approval, consent requested or election required or
permitted to be given or made pursuant to this Lease shall be
effective unless the same is in writing delivered by mail or in hand.
Communications shall be addressed, if to Landlord, at Landlord's
Address or at such other address as may have been specified by prior
notice to Tenant and, if to Tenant, at Tenant's Address or at such
other place as may have been specified by prior notice to Landlord.
Any communication so addressed shall be deemed duly served if mailed
by registered or certified mail, return receipt requested, and shall
be deemed received on the earlier of (i) the third (3rd) business day
after the date of mailing or (ii) the date of actual receipt.
9.5 BIND AND INURE
The obligations of the Lease shall run with the land, and this Lease
shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, except that the Landlord
named herein and each successive owner of the Premises shall be liable
only for the obligations accruing during the period of its ownership.
Neither the Landlord named herein nor any successive owner of the
Premises, whether an individual, trust, a corporation or otherwise
shall have any personal monetary liability beyond their equity
interest in the Premises.
9.6 NO SURRENDER
The delivery of keys and access cards to any employees of Landlord or
to Landlord's agent or any employee thereof shall not operate as a
termination of this Lease or a surrender of the Premises.
9.7 NO WAIVER, ETC.
The failure of Landlord or of Tenant to seek redress for violation of,
or to insist upon the strict performance of a covenant or condition of
this lease or, with respect to such failure of Landlord, any of the
Rules and Regulations
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referred to in Section 6.1.4, whether heretofore or hereafter adopted
by Landlord, shall not be deemed a waiver of such violation nor
prevent a subsequent act, which would have originally constituted a
violation from having all the force and effect of an original
violation, nor shall the failure of Landlord to enforce any of said
Rules and Regulation against any other tenant in the Building be
deemed a waiver of any such Rules and Regulations. The receipt by
Landlord of Fixed Rent or Additional Rent with knowledge of the breach
of any covenant of this Lease shall not be deemed a waiver of such
breach by Landlord, unless such waiver be in writing signed by
Landlord. The payment to Landlord of Fixed Rent or Additional Rent
with knowledge of the breach of any covenant of this Lease shall not
be deemed a waiver of such breach by Tenant, unless such waiver be in
writing signed by Tenant. No consent or waiver, express or implied,
by Landlord or Tenant to or of any breach of any agreement or duty
shall be construed as a waiver or consent to or of any other breach of
the same or any other agreement or duty.
9.8 NO ACCORD AND SATISFACTION
No acceptance by Landlord of a lesser sum than the Fixed Rent and
Additional Rent then due shall be deemed to be other than on account
of the earliest installment of such Fixed Rent and Additional Rent
due, nor shall any endorsement or statement on any check or any letter
accompanying any check or payment as Rent be deemed as accord and
satisfaction, and Landlord may accept such check or payment without
prejudice to Landlord's right to recover the balance of such
installment or pursue any other remedy in this Lease provided.
9.9 CUMULATIVE REMEDIES
The specific remedies to which Landlord or Tenant may resort under the
terms of this Lease are cumulative and are not intended to be
exclusive of any other remedies or means of redress to which it may be
lawfully entitled in case of any breach or threatened breach by either
party of any provisions of this Lease. In addition to the other
remedies provided in this Lease, Landlord and Tenant shall each be
entitled to the restraint by injunction of the violation or attempted
or threatened violation of any of the covenants, conditions or
provisions of this Lease or to a decree compelling specific
performance of any such covenants, conditions or provisions.
9.10 PARTIAL INVALIDITY
If any terms of this Lease, or the application thereof to any person
or circumstances shall to any extent be invalid or unenforceable, the
remainder of this Lease, or the application of such term to persons or
circumstances other than those as to which it is invalid or
unenforceable, shall not be affected thereby, and each term of this
Lease shall be valid and enforceable to the fullest extent permitted
by law.
9.11 LANDLORD'S RIGHT TO CURE
If Tenant, after proper notice is given by Landlord if required
hereunder, shall at any time default in the performance of any
obligation under this Lease, and if such default shall continue after
the expiration of any applicable cure periods, Landlord shall have the
right, but shall not be obligated, to enter upon the Premises and to
perform such obligation, notwithstanding the fact that no specific
provision for such substituted performance by Landlord is made in this
Lease with respect to such default. In performing such obligation,
Landlord may make any payment of money or perform any other act. All
sums so paid by Landlord (together with interest at the rate of four
hundred (400) basis points per annum in excess of the then prime rate
of interest being charged by Fleet National Bank or its successors),
and all necessary incidental costs and expenses in connection with the
performance of any such act by Landlord, shall be deemed to be
additional rent under this Lease and shall be payable to Landlord
immediately on demand. Landlord may exercise the foregoing right
without waiving any other of its rights or releasing Tenant from any
of its obligations under this Lease.
9.12 ESTOPPEL CERTIFICATE
Tenant agrees on the Commencement Date, and from time to time
thereafter, upon not less than fifteen (15) days prior written request
by Landlord, to execute, acknowledge and deliver to Landlord a
statement in writing, in language acceptable to Landlord's Lender, in
the form attached hereto as Exhibit D. Any such statements delivered
pursuant to this Section 9.12 may be relied upon by any prospective
purchaser or mortgagee of premises which include the Premises or any
prospective assignee of any such mortgagee.
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9.13 WAIVER OF SUBROGATION
Any insurance carried by either party with respect to the Premises and
property therein or occurrences thereon, shall if the other party so
requests and it can be so written without additional premium which the
other party agrees to pay, include a clause or endorsement denying to
the insurer rights of subrogation against the other party to the
extent rights have been waived by the insured prior to occurrence of
injury or loss. Each party, notwithstanding any provisions of this
Lease to the contrary, hereby waives any rights of recovery against
the other for injury or loss due to hazards covered by insurance
containing such clause or endorsement to the extent of the
indemnification received thereunder.
9.14 BROKERAGE
Tenant represents and warrants that it has dealt with no broker other
than john Hamilton and CB Richard Ellis/Whittier Partners. Said broker
shall be compensated by Landlord under a separate agreement. Tenant,
in connection with this transaction, agrees to defend, indemnify and
save Landlord harmless from and against any and all claims for a
commission arising out of this Lease and arising out of a relationship
between Tenant and a broker other than the aforementioned.
9.15 QUIET ENJOYMENT
9.15.1 Landlord's Covenant
-------------------
Provided that an Event of default has not occurred and is
not then continuing, Tenant shall, subject to the Permitted
Exceptions, quietly have and enjoy the Premises during the
Lease Term, without hindrance or molestation from any Person
claiming by, though or under Landlord.
9.15.2 Subordination
-------------
This Lease is and shall be subject and subordinate to any
mortgage now or hereafter on the Building and to each
advance made or hereafter to be made under any mortgagee,
and to all renewals, modifications, consolidations,
replacements and extensions thereof and all substitutions
therefore at the election of the holder of any such
mortgage, provided the holder of any such mortgage
recognized Tenant's rights hereunder. To effectuate such
subordination, Tenant and such holder shall execute and
deliver promptly any subordination, non-disturbance and
attornment agreement ("SNDA") that Landlord or any
mortgagee, in language acceptable to mortgagee, may
reasonably request. The election by said mortgagee to
subordinate any such presently existing mortgage to this
Lease shall be exercisable by filing with the appropriate
recording office a notice of such election (the
"SUBORDINATION NOTICE"), whereupon this Lease shall have
priority over such mortgage. A copy of such filing shall be
given to Tenant. Such election by the holder of any
presently existing mortgage shall not affect priority with
respect to this Lease of any other presently existing
mortgage. In the event that any mortgagee shall succeed to
the interest of Landlord then this Lease shall continue in
full force and effect, provided that Tenant is not then in
default under this Lease beyond the expiration of any
applicable notice or grace period, and Tenant shall and does
hereby agree to attorn to such mortgagee and to recognize
such mortgagee as its Landlord. Within thirty (30) days of
the date hereof, Landlord shall deliver to Tenant, and
Tenant shall execute and deliver, a commercially reasonable
SNDA from all mortgagees with respect to the Building, in
the Lender's form annexed hereto and made a part hereof as
Exhibit "D", "SUBORDINATION". Upon the execution and
delivery of an SNDA, the provisions of such SNDA shall
control in the event of any inconsistency between the
provisions of such SNDA and the provisions of section 9.15
of this Lease.
Any mortgage or other voluntary lien or other encumbrance
recorded subsequent to the recording of the Subordination
Notice shall be subject and subordinate to this Lease unless
Landlord and the holder of any such subsequent mortgage and
the holders of all mortgages prior to such subsequent
mortgage elect to subordinate this Lease to such subsequent
mortgage and to any and all advances thereafter made
thereunder and to the interest of the holder thereof in the
Premises, such election to be exercisable by Landlord and
all such holders by filing with the appropriate recording
office (a) notice of such election and (b) an agreement
between the holder of such subsequent mortgage and Tenant,
consented to by holders of all mortgages having priority
over such subsequent mortgage, by the terms of which such
holder will agree to recognize the rights of Tenant under
this Lease and to accept Tenant as tenant of the Premises
under the terms and conditions of this Lease in the event of
acquisition of title by such holder through foreclosure
proceedings or otherwise and Tenant will agree to recognize
the holder of such subsequent mortgage as Landlord in such
event, which
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agreement shall be made expressly to bind and inure to the
successors and assigns of Tenant and of such holder and upon
anyone purchasing said Premises at any foreclosure sale
brought by such holder. Tenant and Landlord agree to
execute and deliver any appropriate instruments necessary to
carry out the agreements contained in this Section 9.15.2.
9.15.3 Notice to Mortgagee
-------------------
No act or failure to act on the part of Landlord which would
entitle Tenant under the terms of this Lease, or by law, to
be relieved of Tenant's obligations hereunder or to
terminate this Lease, shall result in a release or
termination or such obligations or a termination of this
Lease unless (i) Tenant shall have first given written
notice of Landlord's act or failure to act to Landlord's
mortgagees of record (provided Tenant has been given written
notice of the identity of such mortgagee), if any,
specifying the act on the part of Landlord which could or
would give basis to Tenant's rights; and (ii) such
mortgagees, after receipt of such notice, have had the same
opportunity to cure such default as afforded Landlord; but
nothing contained in this Section 9.15.3 shall be deemed to
impose any obligation on any such mortgagees to correct or
cure any such condition.
9.15.4 Other Provisions Regarding Mortgagees
-------------------------------------
If this Lease or the Fixed Rent and Additional due hereunder
is assigned to a mortgagee as collateral security for a
loan, no such mortgagee shall be deemed to have assumed any
of Landlord's obligations hereunder solely as a result of
said assignment. A mortgagee to whom this Lease has been so
assigned shall be deemed to have assumed such obligations
only if (i) by the terms of the instrument of assignment
such mortgagee specifically elects to assume such
obligations or (ii) such mortgagee has (a) foreclosed its
mortgage, (b) accepted a deed in lieu thereof, or (c) taken
possession of the Premises by entry or otherwise. Even if
such mortgagee assumes the obligations of Landlord
hereunder, such mortgagee will be liable for breaches of any
Landlord's obligations hereunder only to the extent such
breaches occur or continue during the period of ownership by
the mortgagee after foreclosure (or any conveyance by a deed
in lieu thereof), all as set forth hereof. Tenant may from
time to time, as mortgagees requires, be required to provide
mortgagee with certain financial information pertaining to
the Tenant as mortgagee may reasonably request.
9.16 SIGNAGE
To protect the architectural integrity and appearance of the Building,
all signs or lettering, if any, visible from the exterior of the
Building or from the lobby, public corridors or any other common area
of the Building must be submitted to Landlord for written approval of
the size, color, design, and location of such signs or lettering
before installation.
Landlord agrees that it shall include Tenant's name and location in
any standard Building directory at the sole cost and expense of the
Landlord. Tenant agrees to allow Landlord to use its name and logo in
publicity, announcements of tenancy and marketing in connection with
the Project.
9.17 SECURITY DEPOSIT - $20,000.00
In the event that Tenant shall fully and faithfully comply with all of
the terms, provisions, covenants and conditions of this lease
agreement, the security deposit shall be returned to Tenant, , after
the date fixed as the end of the lease agreement and after delivery of
the entire possession of the Leased Premises to Landlord.
9.18 INTENTIONALLY OMITTED
9.19 FORCE MAJURE
In the event that Landlord or Tenant shall be delayed, hindered in or
prevented from the performance of any act required hereunder by reason
of Force Majure, then performance of such act shall be excused for the
period of the delay and the period for the performance of any such act
shall be extended for a period equivalent to the period of such delay;
provided, however, unless such Force Majure event shall be in a nature
of earthquake, hurricane, or other like disaster, the party seeking
such delay shall promptly notify the other party to benefit from the
terms hereof.
For the purposes of this Lease Force Majure shall be defined as; Acts
of God, strikes, lockouts, labor troubles, inability to provide
materials, failure of power, restrictive legal requirements, riots and
insurrection, acts of public
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enemy, wars, earthquakes, hurricanes or other natural disasters,
fires, explosions, any act, failure to act, or default of the other
party of this Lease.
EXECUTED as a sealed instrument on the day and year first above
written.
WITNESSES: WELLESLEY/ROSEWOOD MAYNARD MILLS
LIMITED PARTNERSHIP
/s/ ROBERT D. MCGUIRE By: /s/ ROBERT W. MCNAMARA, JR.
- -------------------------------- ----------------------------------
Name: Robert W. McNamara, Jr.
Title: Project Director
WITNESSES: SOFTLOCK SERVICES, INC.
/s/ ROBERT D. MCGUIRE By: /s/ KEITH LORIS
- -------------------------------- ----------------------------------
Name: Keith Loris
Title: CEO
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EXHIBIT A
TENANT'S SPACE PLAN
-------------------
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EXHIBIT B
LANDLORD'S SERVICES
-------------------
Landlord shall pay the following sums in full with respect to the premises:
1. All costs for providing reasonable HVAC (whether by consumption of
oil, natural gas, common area electricity or otherwise). Reasonable to
be defined as a complete year round heating, ventilating and air
conditioning system as required to provide a uniform temperature of 72
degrees in all areas of the floor with 10 degrees outside for heating
and 75 degrees with 89 degrees outside for cooling.
2. All costs for providing on-going electricity to the common areas.
3. All costs for providing water and/or sewer to the premises.
4. All costs for snow plowing and/or shoveling to provide Tenant and
Tenants customers and/or licensees access to the premises.
5. All costs for cleaning of common areas.
6. All HVAC systems will be operational from 7:30 a.m. to 7:30 p.m.
Monday through Friday and 8:30 a.m. to 1:00 p.m. on Saturdays. Additional
service will be provided on an individual basis when requested by the
Tenant with 24 hour notice to Landlord for Monday through Saturday use and
48 hour notice for Sunday use and any additional charges incurred thereby,
will be assessed to the Tenant. There will be a fifty dollar ($50.00) per
hour charge, with a four (4) hour minimum for weekend use, for said
requested service. Tenant will be billed, as Additional Rent, for requested
HVAC service and payment for such will be due with the next monthly rent
installment .
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EXHIBIT C
TENANT ESTOPPEL LETTER
TO: Capital Company of America LLC and its successors and assigns
(collectively, the "Lender")
RE: Premises known as and located at Building No. Five of Clock Tower
Place (a/k/a 146 Main Street), Maynard, Massachusetts (the "Building")
The undersigned, SoftLock Services, Inc. ("Tenant"), does hereby
certify to the Lender as follows:
1. Tenant is the tenant under that certain lease dated ________,
199_, between Tenant and Wellesley/Rosewood Maynard Mills Limited
Partnership, as landlord ("Landlord"), as amended, modified or
supplemented by__________, leasing a portion of the Building (the
"Premises") as more particularly described in the said lease.
Said lease, as so amended, modified, or supplemented, is
hereinafter referred to as the "Lease".
2. The Lease is in full force and effect and, except as set forth
above, has not been amended, modified or supplemented.
3. The Lease represents the entire agreement between Tenant and
Landlord with respect to the leasing and occupancy of the
Premises, and there are no other agreements or representations of
any kind between Landlord and Tenant with respect thereto.
Without limiting the foregoing, Tenant does not have any rights
of first refusal for additional space, options to increase or
relocate its space or options to purchase the Premises or any
interest therein.
4. All obligations of Landlord to be performed or complied with by
Landlord through the date hereof have been fully performed and
complied with including, without limitation, any obligations of
Landlord to prepare the Premises for Tenant's occupancy, and
there exists no default or condition, state of facts or event
that, with the passing of time or the giving of notice, or both,
would constitute a default by Landlord in the performance of its
obligations under the Lease.
5. All obligations of Tenant to be performed or complied with by
Tenant through the date hereof have been fully performed and
complied with and there exists no default or condition, state of
facts or event that, with the passing of time or the giving of
notice, or both, would constitute a default by Tenant in the
performance of its obligations under the Lease.
6. The term of the Lease commences on ________ 199_, and shall
expire on ________,____, unless sooner terminated in accordance
with the terms of the Lease. Tenant has no rights to extend the
term of the Lease except as set forth below:
7. The current rent under the Lease is $_________ per month and has
been paid for the period through __________. All additional rent
and other charges have been paid for the current periods.
8. There are no existing offsets or defenses by Tenant to the
payment of rent and other charges payable by Tenant or otherwise
to the enforcement by Landlord of the Lease.
9. No security deposit or other security has been given to Landlord
under the Lease except as follows:
10. There is no remaining free rent period or any unexpired
concession in or abatement of rent other than set forth in the
Lease.
11. Tenant is in sole possession of the Premises and has not
assigned, sublet, pledged, mortgaged, transferred or otherwise
conveyed all or any portion of its interest in the Premises or
the Lease.
12. There are no actions, whether voluntary or otherwise, pending
against Tenant under the bankruptcy or insolvency laws of the
United States or of any state or territory of the United States.
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13. Tenant understands and acknowledges that this certificate is
delivered to, and shall be relied on by, the Lender in connection
with an extension of a loan financing the Landlord's interest in
the Building and the land on which it stands (the "Mortgaged
Property").
14. Tenant agrees to promptly provide the Lender at its offices at
Two World Financial Center, New York, New York 10281, Attention:
Rhonda Nieder and Barry Funt, with copies of any notices of
default given by or received by Tenant with respect to the Lease
and/or the Premises.
SoftLock Services, Inc.
By: /s/ KEITH LORIS
----------------------------------
Name: Keith Loris
Title: CEO
Dated:_____________________
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EXHIBIT D
SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT
This Subordination, Non-Disturbance and Attornment Agreement (this
"Agreement"), made as of _________________, 199__, by and between THE
CAPITAL COMPANY OF AMERICA LLC, a corporation organized under the laws of
Delaware and having an address at Two World Financial Center, New York, New
York 10281 (the "Lender"), and SOFTLOCK SERVICE, INC., having an address at
Five Clock Tower Place, suite 440, Maynard, MA 01754 (the "Tenant");
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, by a lease (as the same may be amended from time to time, the
"Lease") dated __________, 199_, between Wellesley/Rosewood Maynard Mills
Limited Partnership (the "Landlord"), as landlord, and the Tenant, as
tenant, the Landlord leased to the Tenant a certain portion of the building
known as and located at Building No. Five of Clock Tower Place (a/k/a 146
Main Street) Maynard Massachusetts, being more fully described in said
Lease (the "Premises");
WHEREAS, the Landlord has executed and delivered to the Lender a
mortgage note in the original principal amount of Fifteen Million
($15,000,000) Dollars, which note is secured by, among other things, a
mortgage or deed of trust (which mortgage or deed of trust, and all
amendments, renewals, increases, modifications, replacements,
substitutions, extensions, spreaders, restatements and consolidations
thereof and all re-advances thereunder and additions thereto is referred to
as the "Mortgage") encumbering certain land being more particularly
described in Schedule A attached hereto (the "Land"), together with the
buildings and other improvements located or to be located thereon (such
buildings and other improvements and the Land, collectively, the "Mortgaged
Property") including, without limitation, the Premises.
NOW, THEREFORE, the parties hereto, in consideration of the covenants
contained herein have agreed and hereby agree as follows:
1. The Lease, as the same may hereafter be modified, amended or
extended, is and shall be subject and subordinate in each and
every respect to the Mortgage, to all renewals, modifications,
replacements and extensions thereof, to all terms, conditions and
provisions thereof and to each and every advance heretofore made
or hereafter made under the Mortgage.
2. The Lender agrees that if any action or proceeding is commenced
by the Lender for the foreclosure of the Mortgage or the sale of
the Mortgaged Property, the Tenant shall not be named as a party
therein (unless required by law), and the sale of the Mortgaged
Property in any such action or proceeding and the exercise by the
Lender of any of its other rights under the Mortgage, or under
the note secured by the Mortgage, shall be made subject to all
rights of the Tenant under the Lease, provided that at the time
of the commencement of any such action or proceeding and at the
time of any such sale or exercise of any such other rights, the
tenant shall not be in default under the terms, covenants or
conditions of the Lease or of this Agreement on the Tenant's part
to be observed or performed.
3. The Tenant shall concurrently give the Lender copies of all
notices and other communications given by the tenant to the
Landlord relating to (i) defaults or alleged defaults on the part
of the Landlord or the Tenant under the Lease, (ii) any
violations of any ordinances, statutes, laws, rules, codes,
regulations or requirements of any governmental agency, and (iii)
any assignment or subletting of all or any portion of the
Premises.
4. In the event of any act or omission by the Landlord which would
give the Tenant the right, either immediately or after the lapse
of a period of time, to terminate the Lease, or to claim a
partial or total eviction, the Tenant will not exercise any such
right (i) until it has sent written notice of such act or
omission to the Lender as provided herein, and (ii) unless the
Lender shall have failed within sixty (60) days after receipt of
such notice to cure such default or, if such default is not
reasonably susceptible of cure within such sixty (60) days, the
Lender shall not have commenced the cure of such default within
sixty (60) days of receipt of such notice and thereafter
diligently pursued such action.
5. In the event that the interest of the Landlord is transferred by
reason of, or assigned in lieu of foreclosure or other
proceedings for, enforcement of the Mortgage, then subject to the
provisions of this Agreement, the Lease shall
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nevertheless continue in full force and effect and, upon the
written request of the Lender, the tenant shall attorn to the
Lender and shall recognize the Lender as its landlord. Although
the foregoing provision shall be self-operative, in order to
confirm such attornment, upon the request of the Lender, the
Tenant shall execute and deliver to the Lender (i) an agreement
of attornment in form and content reasonably satisfactory to the
Lender, at the Tenant's sole cost and expense, confirming the
foregoing attornment and agreeing to perform all the terms
covenants and conditions of the Lease on the Tenant's part to be
performed for the benefit of such Lender with the same force and
effect as if such Lender were the Landlord originally named in
this Lease or (ii) a new lease with the Lender, as landlord, for
the remaining term of the Lease and otherwise on the same terms
and conditions and with the same options, if any, then remaining.
Nothing herein contained shall be construed however, to obligate
the Lender to cure any default by the Landlord under the Lease
occurring prior to any date on which the Lender shall succeed to
the rights of the Landlord, it being expressly agreed that under
no circumstances shall the Lender be obligated to remedy any such
default.
6. If the Lender shall succeed to the interest of the Landlord, the
Lender shall have no personal liability as successor to the
Landlord, and the Tenant shall look only to the estate and
property of the Lender in the Mortgaged Property of the proceeds
thereof for the satisfaction of the Tenant's remedies for the
collection of a judgement (or other judicial process) requiring
the payment of money in the event of any default by the Lender as
landlord under the Lease. In addition, the Lender as holder of
the Mortgage or as landlord under the Lease if it succeeds to
that position, shall in no event (i) be liable to the Tenant for
any act or omission of any prior landlord, (ii) be subject to any
offset or defense which the tenant might have against any prior
landlord, (iii) be liable to the Tenant for any liability or
obligation of any prior landlord occurring prior to the date that
the Lender or any subsequent owner acquires title to the
Premises, or (iv) be liable to the Tenant for any security or
other deposits given to secure the performance of the Tenant's
obligations under the Lease, except to the extent that the Lender
shall have acknowledged actual receipt of such security or other
deposits in writing. No other property or assets of the Lender
shall be subject to levy, execution or other enforcement
procedures for the satisfaction of the Tenant's remedies under or
with respect to the Lease, the relationship of the landlord and
the tenant thereunder or the Tenant's use or occupancy of the
Premises.
7. All notices and other communications hereunder shall be sent by
certified or registered mail (postage prepaid, return receipt
requested) to the Lender at the address set forth above,
Attention: Rhonda Nieder and Barry Funt, or to the Tenant at the
address set forth in the Lease, or to such other address or
person as may be specified in a notice sent in accordance with
the provisions of the Section 7, and shall be deemed given when
received at the addresses specified above.
8. No prepayment of rent or additional rent due under the Lease of
more than one month in advance shall be binding upon the Lender,
as holder of the Mortgage or as landlord under the Lease if the
Lender succeeds to that position, unless consented to by the
lender, and from and after the date hereof, no amendment,
modification, surrender or cancellation of the Lease shall be
binding upon the Lender, as holder of the Mortgage or as landlord
under the Lease if the Lender succeeds to that position, unless
such amendment, modification, surrender or cancellation is done
in compliance with the terms of the Mortgage.
9. This Agreement shall apply to, bind and inure to the benefit of
the parties hereto and their respective successors and assigns.
As used herein, the term "Tenant" shall mean and include the
present tenant under the Lease, any permitted subtenant under the
Lease, any permitted assignee of the lease and any successor of
any of them. The term "Lender" as used herein shall include the
holder of the Mortgage, the successors and assigns of the Lender,
and any person, party or entity which shall become the owner of
the Mortgaged Property by reason of a foreclosure of the Mortgage
or the acceptance of a deed or assignment in lieu of foreclosure
or other proceedings for enforcement of the Mortgage or
otherwise. The term "Landlord" as used herein shall mean and
include the present landlord under the Lease and such landlord's
predecessors and successors in interest under the Lease.
10. Notwithstanding anything to the contrary contained in this
Agreement or in the Lease, the Tenant agrees that (i) the
provisions of the Mortgage shall govern with regard to casualty
insurance proceeds and condemnation awards and (ii) in the event
the casualty insurance proceeds or condemnation awards are not
made available for restoration of the Premises, such proceeds or
awards shall be paid to the Lender.
11. This Agreement may not be modified in any manner or terminated
except by an instrument in writing executed by the parties
hereto.
22
<PAGE>
12. This Agreement shall be governed by and construed in accordance
with the laws of the state of Massachusetts.
Both the Tenant and the Lender hereby irrevocably waive all rights to
trial by jury in any action, proceeding or counterclaim arising out of
or relating to the Lease or this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
THE CAPITAL COMPANY OF AMERICA LLC
By: /s/ RHONDA NIEDER
-------------------------------------
Name: Rhonda Nieder
Title: Vice President
SOFTLOCK SERVICES, INC.
By: /s/ KEITH LORIS
-------------------------------------
Name: Keith Loris
Title: CEO
STATE OF
New York ,ss. March 12, 1999
Then personally appeared before me the above named Rhonda Nieder,
Vice President of THE CAPITAL COMPANY OF AMERICA LLC, a Delaware
corporation, and acknowledged the foregoing instrument to be his free act
and deed and the free act and deed of said corporation, before me,
/s/ CULLEN CAUGHRON
Notary Public
My Commission expires: January 30, 2001
STATE OF
Middlesex ,ss. March 4, 1999
Then personally appeared before me the above named Keith Loris, CEO
of SOFTLOCK SERVICES, INC., and acknowledged the foregoing instrument to be
his free act and deed and the free act and deed of said corporation, before
me,
/s/ ROBERT W. MCNAMARA, JR.
Notary Public
My Commission expires: December 9, 1999
23
<PAGE>
EXHIBIT E
---------
RULES AND REGULATIONS
1. Heating, lighting and plumbing: The Landlord should be notified at
once of any trouble with heating, lighting or plumbing fixtures.
Tenants must not leave the doors of the Premises unlocked at night.
2. The sidewalks, entrances, halls and stairways shall not be obstructed
by any Tenant or used for any purposes other than ingress and egress
to and from their respective Premises, and no articles or rubbish
shall be left herein.
3. No toilet fixture shall be used for any purpose other than that for
which it is intended, and no sweepings, rubbish, rags, ashes or other
substances shall be thrown herein.
4. The weight and position of all safes and heavy equipment or machines
shall be subject to the approval of the Landlord.
5. Lettering on doors, tablets and building directory shall be subject to
the approval of the Landlord; no lettering shall be allowed on outside
windows.
6. No wires for telephone service, electric lights, messenger service or
for any other purpose shall be put in the Premises without the consent
of the Landlord.
7. No glass in doors or elsewhere through which light is admitted in to
any part of the building shall be obstructed.
8. No animals or birds of any kind shall be kept, allowed in or about the
Building any time for any reason other those granted by law.
9. All freight, furniture, etc. must be received and delivered through
entrances to the Building designated for such purpose unless otherwise
authorized by the Landlord.
10. Nothing shall be thrown from or taken in through the windows, nor
shall anything be left outside the Building on the window sills of the
Premises.
11. No person shall loiter in the halls, corridors, or lavatories.
12. The Landlord, its agents and employees shall have access at reasonable
times to perform their duties in the maintenance and operation of the
Premises, subject to the terms and conditions of this Lease.
13. No Tenant shall use any method of heating other than that provided for
in the Tenant's Lease without the consent of the Landlord.
14. Any damage caused to the Building or the Premises or to any person or
property herein as a result of any breach of any of the rules and
regulations by the Tenant shall be borne by the Tenant.
15. The Landlord reserves the right to make any such other and further
rules and regulations as, in its judgment may from time to time be
necessary for maintaining the safety and cleanliness of the Premises
and Building for the preservation of good order therein, provided the
same do not materially restrict or inhibit Tenant's rights under this
Lease.
24
<PAGE>
EXHIBIT F
CLEANING SPECIFICATIONS
-----------------------
25
EXHIBIT 10.5
STOCK OPTION
SOFTLOCK SERVICES, INC.
In consideration for the payment by LaFlamme of $20,000.00 and
other valuable consideration, of which SoftLock Services, Inc. (the
"Company") hereby acknowledges receipt, the Company hereby grants to
Maurice R. LaFlamme ("LaFlamme") the right, privilege, and option to
purchase, for a 36-month period commencing on October 25, 1996 and expiring
on October 25, 1999 (the "Option Period"), up to 1,500 Common Shares of the
Company at an exercise price $122.00 per share (the "Option").
1. NOTICE OF EXERCISE.
------------------
The Option granted under this Agreement may be exercised at any
time and from time to time in whole or in part by written notice delivered
to the Company. Such notice shall state the number of shares being
exercised and shall specify a date as the date, not more than 10 days from
the date of such notice, on which full payment for the option price for the
number of shares specified shall be made therefor at the principal office
of the Company. Upon receipt of payment, the Company shall make immediate
delivery of such shares.
2. REGISTRATION RIGHTS.
-------------------
For so long as LaFlamme retains an interest in any part of the
Option and/or any of the shares issuable upon exercise of the Option,
LaFlamme shall have the right to require the Company, at the Company's sole
expense (except for any underwriting commissions applicable to said
Option), to register the Option and the shares issuable upon exercise of
the Option each time the Company registers its shares or other securities
under the Securities Act of 1933, as amended, or otherwise conducts a
public offering of its securities. The Company shall each such time give
written notice (the "Company Notice") to LaFlamme of its intention to do so
at least 45 days prior to the filing of a registration statement with
respect to such registration with the Securities and Exchange Commission or
state securities division, as appropriate. If LaFlamme desires to dispose
of all or part of his stock, he may request registration thereof in
connection with the Company's registration by delivering to the Company,
within 30 days after receipt of the Company's Notice, written notice of
such request stating the number of shares of stock to be sold by LaFlamme.
3. NO SHAREHOLDER RIGHTS.
---------------------
LaFlamme acknowledges that he has no rights as a shareholder with
respect to shares for which the Option has not been exercised, and LaFlamme
shall have no rights with respect to such shares unless otherwise conferred
by this Agreement.
4. VOTING RIGHTS.
-------------
In the event LaFlamme (or any of his assigns) exercises the
Option within the first six months of the Option Period, LaFlamme hereby
agrees that all voting rights associated with the
<PAGE>
shares issued upon exercise of the Option (the "Option Shares") shall be
assigned to Jonathan Schull, except that he shall retain the voting rights
associated with the Option Shares for all matters brought before the
Company's shareholders involving: (i) authorization or issuance of
additional shares or other classes of securities or (ii) extraordinary acts
of the Company, including any merger, consolidation or sale of all or
substantially all of the assets or business of the Company. During the
first six months of the Offering Period, the Company agrees to refrain from
setting a record date to determine shareholders entitled to vote on the
matters mentioned in items (i) and (ii) for a period of fifteen (15) days
following delivery of written notice to LaFlamme that the Company intends
to submit such a proposal to the Company's shareholders. In any event,
this assignment of voting rights to Mr. Schull shall terminate at the end
of the first six month period the Option Period.
5. TRANSFERABILITY, VESTING AND TERMINATION OF OPTION RIGHTS.
---------------------------------------------------------
The options granted hereunder shall be fully vested and
exercisable immediately by LaFlamme upon the Effective Date hereof. The
Options granted hereunder shall be transferable as long as any transferee
or assignee of LaFlamme agrees to be bound by the terms of this Agreement.
Notwithstanding anything to the contrary set forth in this Agreement, all
unexercised options herein shall terminate unless LaFlamme has given notice
of his intent to exercise, in accordance with paragraph 1, prior to
expiration of the Option Period.
6. PAYMENT FOR SHARES.
------------------
Upon exercise of any option, in whole or in part, the option
price for the shares to which the exercise relates shall be paid in cash
(or by the surrender of shares of Common Stock, i.e., a cashless exercise,
provided, LaFlamme and the Company agree on the valuation of the shares, or
by the transfer of other property, provided, LaFlamme and the Company agree
on the suitability and valuation of the property). No shares for which a
purchase price is due shall be issued until full payment has been made.
7. RESERVATION OF SHARES.
---------------------
The Company hereby agrees that at all times there shall be
reserved for issuance and delivery upon exercise of this Option such number
of shares of its Common Stock, as shall be required for issuance or
delivery upon exercise of this Option.
8. EFFECT OF CHANGE IN SHARES.
--------------------------
In the event that there is any change in the shares of the
Company through declaration of stock dividends or through merger,
consolidation, or recapitalization resulting in stock split-ups or
combinations or exchanges of shares or otherwise, the number of shares
available for option and subject to option shall be appropriately adjusted
hereunder, as determined by the Company's certified public accounting firm,
which determination shall be final and binding.
In case of any consolidation or merger of the Company with or
into another corporation (other than a merger with a subsidiary in which
the Company is the surviving
<PAGE>
corporation and which does not result in any reclassification, capital
reorganization or other change of outstanding shares of common stock
issuable upon exercise of this Option) or in case of any sale or conveyance
to another corporation of the property of the Company as an entirety or
substantially as an entirety, LaFlamme shall have the right, at his
election, either (i) to exercise the Option prior to the consummation of
any such change, consolidation, merger, sale or conveyance, or (ii) to
receive, in lieu of exercising the Option, an option, in substitution, to
purchase such number of shares in the surviving entity at such exercise
price that will prevent any dilution (vote or price) of LaFlamme's interest
in the Company and its business.
9. GOVERNING LAW.
-------------
This Option shall be governed by and construed and enforced in
accordance with the laws of the State of Rhode Island.
10. NOTICES.
-------
Any notice or other communication to the Company or to LaFlamme
shall be in writing and any such notice or communication shall be deemed
duly given or made (i) if mailed by registered or certified mail, return
receipt requested, postage prepaid, (ii) by confirmed facsimile
transmission or (iii) by overnight delivery service, and if to the Company:
to its offices located at 36 Brunswick Street, Rochester, New York, 14607,
Attn: Jonathan Schull, and if to LaFlamme: to his residence at 34 Weatherly
Court, Jamestown, RI 02385.
IN WITNESS WHEREOF, SoftLock Services, Inc. has signed this Option as
of the 8 day of November 1996.
SoftLock Services, Inc.
By: /s/ JONATHAN SCHULL
--------------------------------
Jonathan Schull, President
/s/ MAURICE R. LAFLAMME
--------------------------------
Maurice R. LaFlamme
EXHIBIT 21
SUBSIDIARIES OF THE SMALL BUSINESS ISSUER
SoftLock Services, Inc.
Incorporated in Delaware
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Ths schedule contains summary financial information extracted from the
Balance Sheet at December 31, 1998 (Audited) and the Statement of
Operations for the Year Ended December 31, 1998 (Audited). It is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 160,841
<SECURITIES> 0
<RECEIVABLES> 4,619
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 165,460
<PP&E> 44,472
<DEPRECIATION> 28,148
<TOTAL-ASSETS> 182,842
<CURRENT-LIABILITIES> 187,607
<BONDS> 0
0
0
<COMMON> 79,556
<OTHER-SE> (86,227)
<TOTAL-LIABILITY-AND-EQUITY> 182,842
<SALES> 109,402
<TOTAL-REVENUES> 134,018
<CGS> 23,166
<TOTAL-COSTS> 23,166
<OTHER-EXPENSES> 718,790
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 440
<INCOME-PRETAX> (607,938)
<INCOME-TAX> (609,232)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (609,232)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
